Community hub
Recent from talks
Contribute something to knowledge base
Content stats: 0 posts, 0 articles, 0 media, 0 notes
Members stats: 0 subscribers, 0 contributors, 0 moderators, 0 supporters
Subscribers
Supporters
Contributors
Moderators
Hub AI
Interest rate swap AI simulator
(@Interest rate swap_simulator)
Hub AI
Interest rate swap AI simulator
(@Interest rate swap_simulator)
Interest rate swap
An interest rate swap is a derivative contract in which two parties exchange streams of interest payments on a notional principal for a set period. The most common form exchanges a fixed rate for a floating rate in the same currency. Variants include basis swaps, overnight index swaps (OIS), forward-start swaps and swaps with changing notionals. Since the late 2000s, collateralised swaps are typically priced and risk-managed using OIS discounting, and following the end of LIBOR new trades reference overnight risk-free rates such as the SOFR, the SONIA and the €STR. As at end-June 2024, interest rate derivatives were the largest segment of the global over-the-counter derivatives market by notional outstanding.
Arrangements resembling swaps emerged from back-to-back or parallel loans used in the 1970s to navigate exchange controls. A widely cited early landmark was a 1981 currency swap between IBM and the World Bank arranged by Salomon Brothers, which helped popularise the technique. The first interest rate swap is commonly dated to 1982.
Standard documentation and definitions from the ISDA in the 1990s and 2000s supported market growth and common terminology. After the 2007–2008 financial crisis, pricing for collateralised swaps shifted to OIS discounting and multi-curve approaches, reflecting the role of collateral and funding costs.
From 2021 to 2024, regulators completed the transition from LIBOR to overnight risk-free rates. Remaining synthetic sterling and United States dollar LIBOR settings ceased in 2024, which marked the end of LIBOR in mainstream use.
A standard interest rate swap has two legs linked to the same notional amount. The fixed leg pays a fixed rate on scheduled accrual periods. The floating leg pays a rate set at each reset date by a reference index such as the SOFR, the SONIA or the €STR, with payments exchanged on the corresponding payment dates. Day-count and business-day conventions follow market standards defined in documentation such as the ISDA Interest Rate Derivatives Definitions and, for on-venue trading, the relevant rulebooks.
Variants include forward-start swaps, amortising or accreting notionals, zero-coupon swaps, basis swaps in which both legs float, and overnight index swaps that reference a compounded overnight rate.
Common structures include the following.
Common uses include hedging interest rate exposure, adjusting asset and liability duration, and expressing views on the level or shape of the yield curve. In United States markets, the futures and swaps ecosystem now links SOFR futures and SOFR-linked swaps after the conversion of Eurodollar futures and USD LIBOR swaps in 2023.
Interest rate swap
An interest rate swap is a derivative contract in which two parties exchange streams of interest payments on a notional principal for a set period. The most common form exchanges a fixed rate for a floating rate in the same currency. Variants include basis swaps, overnight index swaps (OIS), forward-start swaps and swaps with changing notionals. Since the late 2000s, collateralised swaps are typically priced and risk-managed using OIS discounting, and following the end of LIBOR new trades reference overnight risk-free rates such as the SOFR, the SONIA and the €STR. As at end-June 2024, interest rate derivatives were the largest segment of the global over-the-counter derivatives market by notional outstanding.
Arrangements resembling swaps emerged from back-to-back or parallel loans used in the 1970s to navigate exchange controls. A widely cited early landmark was a 1981 currency swap between IBM and the World Bank arranged by Salomon Brothers, which helped popularise the technique. The first interest rate swap is commonly dated to 1982.
Standard documentation and definitions from the ISDA in the 1990s and 2000s supported market growth and common terminology. After the 2007–2008 financial crisis, pricing for collateralised swaps shifted to OIS discounting and multi-curve approaches, reflecting the role of collateral and funding costs.
From 2021 to 2024, regulators completed the transition from LIBOR to overnight risk-free rates. Remaining synthetic sterling and United States dollar LIBOR settings ceased in 2024, which marked the end of LIBOR in mainstream use.
A standard interest rate swap has two legs linked to the same notional amount. The fixed leg pays a fixed rate on scheduled accrual periods. The floating leg pays a rate set at each reset date by a reference index such as the SOFR, the SONIA or the €STR, with payments exchanged on the corresponding payment dates. Day-count and business-day conventions follow market standards defined in documentation such as the ISDA Interest Rate Derivatives Definitions and, for on-venue trading, the relevant rulebooks.
Variants include forward-start swaps, amortising or accreting notionals, zero-coupon swaps, basis swaps in which both legs float, and overnight index swaps that reference a compounded overnight rate.
Common structures include the following.
Common uses include hedging interest rate exposure, adjusting asset and liability duration, and expressing views on the level or shape of the yield curve. In United States markets, the futures and swaps ecosystem now links SOFR futures and SOFR-linked swaps after the conversion of Eurodollar futures and USD LIBOR swaps in 2023.