Fixed Interest Player v/s Floating Interest Player: Tug of War ()
Abstract
Swaps have been one of the most widely used derivatives since 1970s and
for good reasons. Interest rate swap is a mutual agreement between two parties
to pay each other the differential amount of up and above the fixed v/s LIBOR.
This paper tries to answer the long standing question of what should have been
the range around which the fixed rate should have hovered with respect to
fluctuating LIBOR over the years to attain break-even and not to be worse off.
This paper analyses for the difference in the average LIBOR of various periods
(1 month, 3 months, 6 months and 12 months) with respect to different maturity
dates (5 years, 10 years, 15 years, 20 years and 23 years). It looks for the
presence of structural change in the trend of LIBOR beginning from 1990 to
2013. This paper will draw the attraction of academic as well as market
participants. Fixed rate player refers to the party which agrees to pay the
existing floating rate (LIBOR) in the market in exchange of an agreed upon
fixed rate from the counter party and vice-versa.
Share and Cite:
Ahamed, N. (2015) Fixed Interest Player v/s Floating Interest Player: Tug of War.
Theoretical Economics Letters,
5, 469-475. doi:
10.4236/tel.2015.54055.
Conflicts of Interest
The authors declare no conflicts of interest.
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