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# Swap

From ThetaWiki

## Contents

## Description

A Swap is a financial contract where two parties exchange one stream of cash flows with the other. Usually at least one of the cash payment streams has a rate that is variable.

## ThetaML implementation of an interest rate swap

model swap import N "Notional" import f_r "Fixed rate" import T "Maturity" import bp "basis premium" import EUR "Numeraire" import r "Libor interest rate" export V "value of swap(for fixed)" c = 0 loop T theta 1 c = c + (r + bp/100 - f_r) * N * EUR end V = c end

## Knock Out Swap

A Knock-Out Swap is a swap which is cancelled when a given condition is reached. For example, a swap can be knocked out if the LIBOR rate reaches a certain threshold.

## ThetaML implementation of a knock-out swap

model KnockOutSwap import N "Notional" import f_r "Fixed rate" import T "Maturity" import bp "Basis premium" import EUR "Numeraire" import r "Libor interest rate" import B "Barrier" export P "value of swap(for fixed)" P = E(V!) c = 0 cond = 0 loop T theta 1 % knock-out? if r > B cond = 1 end % knocked-out earlier? if cond < 1 c = c + (r + bp/100 - f_r) * N * EUR end end V = c end