Tham khảo tài liệu 'prentice trade bond markets analysis and strategies finance_13', tài chính - ngân hàng, đầu tư chứng khoán phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | HHi _ MBHỄB BBS BNwKfflL . A I . BI Bi HSI S i EHB RJB ywtM 7U CHAPTER 23 Interest-Rate Swaps and Agreements CHAPTER 23 Interest-Rate Swaps and Agreements 591 flow of the asset would be uncertain if it 1 is callable as in the case of a callable corporate bond a mortgage loan a pass-through security or a loan that can be prepaid and or 2 exposes the investor lender to default To illustrate the use of a swaption suppose that a savings and loan association enters into a four-year swap in which it agrees to pay 9 fixed and receive LIBOR. The fixed-rate payments will come from a portfolio of mortgage pass-through securities with a coupon rate of 9 . Suppose that one year after the swap begins mortgage rates decline to 6 resulting in large prepayments. The prepayments received will have to be reinvested at a rate lower than 9 but the S L must still pay 9 under the terms of the swap. As the S L is paying fixed and receiving floating it would seek to use a swaption that allows it to unwind the original swap by receiving fixed and paying floating. More specifically the S L will enter into a swaption that will allow It to receive 9 and pay LIBOR. The purchase of a put swaption with a strike rate of 9 and a LIBOR floating rate would be the appropriate swaption to terminate the original swap. INTEREST-RATE AGREEMENTS CAPS AND FLOORS An interest-rate agreement is an agreement between two parties whereby one party for an upfront premium agrees to compensate the other at specific time periods if a designated interest rate called the reference rate is different from a predetermined level. When one party agrees to pay the other when the reference rate exceeds a predetermined level the agreement is referred to as an interest-rate cap or ceiling. The agreement is referred to as an interest-rate floor when one party agrees to pay the other when the reference rate falls below a predetermined level. The predetermined interest-rate .
