Fixed-for-floating interest rate swap
Exchange fixed and floating interest on a single-currency notional. Follow open value, finalized coupons and the separate value of future contractual cash flows.
How it works
Choose receive fixed or pay fixed. The floating index supplies standard frequencies, day counts, calendars and lags. Term-index coupons use their fixing; overnight coupons compound daily observations. Remaining amounts use projection and discount curves, with permitted approximations identified.
Key contract terms
- Currency and positive notional
- Receive fixed or pay fixed
- Fixed annual rate and optional floating spread
- Compatible floating index and system convention
- Trade, effective and maturity dates
Payoff: the contractual result
For receive fixed, each coupon contributes fixed interest minus floating interest, including any spread. Pay fixed reverses the sign. Open amounts are discounted; finalized coupon results enter realized P&L. The displayed NPV combines both, whereas future contractual cash-flow value is a separate payment-date-based measure.
A simple example
Assume USD 1,000,000, receive fixed at 4%, floating at 3.5%, zero spread and a 0.5 year fraction for both legs. The finalized net coupon is 1,000,000 × (4% − 3.5%) × 0.5 = USD 2,500, before any open-coupon discounting.
Illustrative amounts exclude fees and currency conversion. A payoff is distinct from the instrument's value before maturity.
Lifecycle
- Contract created
- Contract takes effect
- Successive fixings and coupons
- Last coupons finalized
- Create the swap with its effective date, maturity, fixed rate and floating index; the convention defines the coupon schedule.
- During the contract, successive index fixings determine the floating coupons. Fixings are observations, not partial exercises or manual position closures.
- Each coupon becomes realized when its required fixings are exact and final; later coupons remain open. An estimated or provisional rate does not finalize a coupon.
- The last required coupon observations complete the lifecycle. Realization does not confirm payment: a finalized coupon can still have a later contractual payment date.
Using this instrument in OTCValue
Coverage depends on enabled indices and usable curves/fixings. This is a constant-notional, single-currency swap, not a custom amortizing or cross-currency structure. Realized does not mean paid. Do not add future cash-flow value to realized P&L: the same coupon can appear in both measures. Actual payments are not tracked.