Zero-Coupon Swap: What it is, How it Works - Investopedia

A zero-coupon swap is an exchange of cash flows in which the stream of floating interest-rate payments is made periodically, as it would be in a plain vanilla swap, but where the stream of fixed-rate payments is m… See more

3%
OFF

Inflation Swap: Understanding The Basics Of Zero Coupon Inflation …

2 weeks from now

Jun 12, 2024 · Example: Let's say that an investor enters into a zero coupon inflation swap with a fixed rate of 3% and a notional value of $1 million. If the inflation rate is 2%, the floating rate …

fastercapital.com

43%
OFF

Zero Coupon Interest Rate Swap Futures Overview

2 weeks from now

$100MM swap with ATM rate of 1.43%. Do Zero coupon swap Futures match the otc market? Figure 2: Prices for the “fixed” leg are interpolated so that the implied forward rates are …

cmegroup.com

FAQs about Zero-Coupon Swap: What it is, How it Works - Investopedia Coupon?

What is a zero coupon swap?

A zero coupon swap is a type of interest rate swap where the future interest payments are exchanged for a single net payment at maturity. It is simpler than a traditional swap because it only has one net payment, and it differs from a zero coupon bond because it involves interest rate swaps rather than direct bond investments. ...

How do interest rates affect zero coupon swap pricing?

Interest rates play a crucial role in zero coupon swap pricing. If interest rates rise, the present value of the fixed payments (discounted at the higher interest rate) will decrease, leading to a lower net payment for the fixed-rate payer. ...

How do you value a zero-coupon swap?

Valuing a zero-coupon swap involves determining the present value of the cash flows using a spot rate (or zero-coupon rate). The spot rate is an interest rate that applies to a discount bond that pays no coupon and produces just one cash flow at the maturity date. ...

What is a reverse zero coupon swap?

Another type is the reverse zero coupon swap, which reduces the risk for the floating interest payee since the floating interval payment schedule is maintained, but the fixed rate payment is made upfront. ...

Can a zero coupon swap be used as a hedging instrument?

Zero coupon swaps can be used as a hedging instrument to manage interest rate risk. For example, a company with a floating rate loan could enter into a zero coupon swap as the fixed rate payer, effectively converting its floating rate liability into a fixed rate liability. This allows the company to hedge against the risk of rising interest rates. ...

What is a zero inflation coupon swap?

Zero inflation coupon swaps are a similarly-named investment agreement with a quite different method of operation, as the underlying asset is currency and the floating rate is based on inflation. Fixed and floating rate payments are both made once, at the end, based on the known inflation level. ...