6. Pricing and Valuation of Swap Contracts
g. explain how swap contracts are similar to but different from a series of forward contracts;
h. distinguish between the value and price of swaps;
What is a swap contract?
Swaps are derivative securities in the form of agreements between two counterparties to exchange cash flows over a period of time, depending on the values of specified market variables.
A swap is sometimes known as a series of (what goes here), reflecting the fact that (what goes here).
- off-market forward contracts
- the implicit forward contracts that make up the swap are all priced at the swap fixed rate and not at the rate at which they would normally be priced in the market.