Interest Rate Swaps - How to Price the Most Traded Derivative on Earth¶

Imagine you are the CFO of a mid-sized airline. You just borrowed $500 million at a floating rate to finance a fleet of new planes. Life is good. Then you open Bloomberg one morning and see that interest rates have jumped 200 basis points overnight because the Fed decided inflation needed another beating. Your annual interest bill just went up by $10 million. Your board is furious. Your stock is tanking. Your weekend plans are ruined.

Now imagine a parallel universe where you, the same CFO, had called up a bank three months earlier and said: “I want to swap my floating rate payments for fixed ones.” The bank says sure, signs some paperwork, and suddenly you are paying a fixed 4.5% no matter what the Fed does. Rates spike? Not your problem. You sleep like a baby while your competitors are mainlining espresso at 3 AM.

That magical piece of paperwork is called an interest rate swap. And it is, by notional volume, the most traded derivative instrument on the planet. We are talking about over $400 trillion in outstanding notional value globally. That is not a typo. Trillion, with a T. More than the combined GDP of every country on Earth. No pressure, but let’s learn how to price one.

What Is an Interest Rate Swap?¶

An interest rate swap is a contract between two parties to exchange interest rate cash flows over a set period. The most common type (and the one we will focus on) is the plain vanilla interest rate swap, where one party pays a fixed rate and the other pays a floating rate, both calculated on the same notional principal.

Here is the beautiful simplicity of it: no one actually exchanges the principal. The notional amount is just a reference number used to calculate the interest payments. If the notional is $100 million, nobody wires $100 million anywhere. They just use that number to figure out who owes whom, and then they settle the difference.

Think of it like two friends who bet on every football game but only settle up the difference at the end of the month. Nobody hands over the full amount of every bet. You just net it out and one person pays the other the difference. Same concept, except with interest rates and hundreds of millions of dollars.

The Two Legs¶

Every plain vanilla swap has two legs:

• Fixed Leg: One party pays a predetermined, constant interest rate (the swap rate) on the notional principal. These payments are predictable from day one.
• Floating Leg: The other party pays a variable interest rate that resets periodically based on a benchmark rate like SOFR (Secured Overnight Financing Rate) or EURIBOR (Euro Interbank Offered Rate).

The party paying fixed is called the fixed-rate payer (or the party that is “long” the swap). The party paying floating is the floating-rate payer (or “short” the swap). In practice, traders will say they are “paying” (fixed) or “receiving” (fixed).

Key Insight: In a plain vanilla swap, only the net difference between the two legs is exchanged on each payment date. If the fixed leg owes $2.5 million and the floating leg owes $2.1 million, only $400,000 changes hands. Clean and simple.

Why Do Swaps Exist?¶

You might be thinking: “Why not just borrow at the rate you want in the first place?” Great question. Three reasons dominate.

1. Hedging¶

This is the airline CFO scenario from the opening. Companies that have borrowed at floating rates are exposed to interest rate risk. A swap lets them convert that exposure to a fixed rate, locking in their cost of debt. Conversely, a company that borrowed at a fixed rate but believes rates will fall can swap to floating to benefit from declining rates.

Banks use swaps constantly for asset-liability management (ALM). A bank might have long-term fixed-rate mortgage assets funded by short-term floating-rate deposits. That is a duration mismatch, and if rates move the wrong way, it can destroy profitability. Swaps let the bank realign the interest rate profiles of its assets and liabilities.

2. Speculation¶

If you believe interest rates are going up, you can “pay fixed” in a swap. You lock in today’s lower fixed rate and receive the floating rate, which will increase as rates rise. Your floating receipts grow while your fixed payments stay the same. Profit.

If you believe rates are going down, you do the opposite: “receive fixed.” You collect the higher fixed rate while paying a declining floating rate. The swap becomes a directional bet on rates without having to buy or sell a single bond.

3. Comparative Advantage¶

This is the textbook classic, first articulated elegantly by the theory behind the original World Bank/IBM swap in 1981. Sometimes two companies face different borrowing conditions in fixed and floating markets. Even if one company is a better credit than the other in both markets, the relative difference in rates might allow both to benefit by borrowing where they have a comparative advantage and then swapping.

Suppose:

Company B pays 1.50% more than A in the fixed market, but only 0.70% more in the floating market. Company B has a comparative advantage in floating-rate borrowing (it is less disadvantaged there). If A borrows fixed and B borrows floating, and then they swap, both can end up better off than if they had borrowed directly in their preferred market. The total savings equal the difference in spreads: 1.50% - 0.70% = 0.80%, which gets split between them (and the arranging bank takes a cut, naturally).

Key Insight: The comparative advantage argument explains why the swap market exploded in the 1980s. Even today, it remains one of the core economic reasons swaps add value beyond simple hedging.

The Mechanics: Nuts and Bolts¶

Let’s get specific about how a plain vanilla swap actually works in practice.

Key Parameters¶

Every swap contract specifies:

Payment Frequency Mismatch¶

One thing that catches beginners off guard: the fixed and floating legs often have different payment frequencies. In USD swaps, the fixed leg typically pays semi-annually while the floating leg pays quarterly. This means on some dates only the floating payment occurs, and on others both legs settle.

Day Count Conventions¶

The day count convention determines how many “days” are in a period for interest calculation purposes. The two most common are:

• 30/360: Assumes every month has 30 days and every year has 360 days. Used for the fixed leg in many markets. Nice and clean.
• ACT/360: Uses actual calendar days in the numerator but 360 in the denominator. Used for the floating leg. Slightly more complex, but reflects actual time elapsed.

The difference matters. A semi-annual period under 30/360 always gives you 180/360 = 0.5. Under ACT/360, you might get 182/360 = 0.5056 or 184/360 = 0.5111 depending on the actual days. Over a $100 million notional, these small fractions add up quickly.

Net Settlement¶

On each payment date where both legs are due, the payments are netted:

Net Payment = Fixed Payment - Floating Payment

If positive, the fixed payer pays the difference. If negative, the floating payer pays. Simple.

Key Terminology¶

Before we dive into pricing, let’s make sure the vocabulary is locked in.

Swap Rate¶

The swap rate is the fixed rate in the swap that makes the contract worth zero at inception. It is the “fair” fixed rate. When a trader quotes “the 5-year swap rate is 4.25%,” they mean that 4.25% is the fixed rate at which the present value of the fixed leg exactly equals the present value of the expected floating leg payments. This is the market-clearing price.

Swap rates are closely watched benchmarks. The swap curve (swap rates plotted against tenor) is one of the most important curves in all of fixed income, rivaling the Treasury yield curve in importance.

SOFR and EURIBOR¶

SOFR (Secured Overnight Financing Rate) is the dominant floating rate benchmark for USD swaps since the LIBOR transition. It is based on actual overnight Treasury repo transactions, making it far more robust than the old LIBOR (which was, shall we say, somewhat susceptible to manipulation).

EURIBOR (Euro Interbank Offered Rate) serves a similar role for EUR-denominated swaps. Unlike SOFR, EURIBOR still uses a panel-bank submission methodology, though with significant reforms.

Tenor¶

The tenor is simply the total duration of the swap. Common tenors are 2, 3, 5, 7, 10, 15, 20, and 30 years. The 5-year and 10-year swaps are the most liquid in most markets.

Notional Principal¶

The notional is the hypothetical principal amount used to calculate interest payments. It never changes hands. Think of it as the ruler you use to measure, not the thing being measured.

DV01 (Dollar Value of a Basis Point)¶

DV01 measures how much the value of the swap changes when interest rates move by one basis point (0.01%). If a swap has a DV01 of $45,000, then a one basis point increase in rates changes the swap’s market value by approximately $45,000.

Rule of Thumb: DV01 is roughly proportional to notional and tenor. A $100 million, 10-year swap has roughly twice the DV01 of a $100 million, 5-year swap. It is the primary risk metric traders use to size and hedge swap positions.

How to Price a Swap: Step by Step¶

Alright, here is where we get into the real meat. Pricing an interest rate swap comes down to one elegant principle:

At inception, the present value of the fixed leg must equal the present value of the floating leg.

That is it. The swap rate is chosen so that the net present value (NPV) of the entire swap is zero at the start. Neither party is giving the other a gift. It is a fair exchange.

To price a swap, you need three things:
1. Discount factors for each payment date
2. Forward rates for the floating leg
3. The swap rate (which is what you are solving for)

Step 1: Build the Discount Factor Curve¶

A discount factor tells you the present value today of $1 received at some future date. If the discount factor for 1 year is 0.9569, it means $1 received in one year is worth $0.9569 today.

Discount factors come from the zero-coupon yield curve (or equivalently, the swap curve bootstrapped from market instruments). For our purposes, assume we have the following discount factors derived from the current market:

The discount factor is calculated as:

DF(T) = e^(-r x T)

Where r is the continuously compounded zero rate and T is time in years.

Step 2: Calculate Forward Rates for the Floating Leg¶

The floating rate for each period is not known in advance (except for the first period, which has already been set). But the market has already priced in its expectations. We extract forward rates from the discount factors.

The forward rate between time T1 and T2 is:

F(T1, T2) = (1 / (T2 - T1)) x (DF(T1) / DF(T2) - 1)

This gives us the implied forward rate for each floating period. The logic is straightforward: if you know what $1 is worth today when received at T1, and what $1 is worth today when received at T2, you can back out what the market expects the rate to be between T1 and T2.

Step 3: Value the Floating Leg¶

For each floating period, the payment is:

Floating Payment = Notional x Forward Rate x Day Count Fraction

Then discount each payment back to today:

PV(Floating Payment) = Floating Payment x DF(payment date)

Sum up all the present values, and that is your floating leg value.

Step 4: Value the Fixed Leg¶

For each fixed period, the payment is:

Fixed Payment = Notional x Swap Rate x Day Count Fraction

Discount each one:

PV(Fixed Payment) = Fixed Payment x DF(payment date)

Sum up all the present values, and that is your fixed leg value.

Step 5: Solve for the Swap Rate¶

Set the PV of the fixed leg equal to the PV of the floating leg and solve for the swap rate. Since the swap rate is a constant multiplier across all fixed payments, the formula simplifies to:

Swap Rate = PV(Floating Leg) / (Notional x Sum of [Day Count Fraction x DF] for each fixed payment)

Or more compactly:

Swap Rate = Sum of (Forward Rate x DCF x DF) / Sum of (DCF x DF)

Where DCF is the day count fraction for each period and DF is the discount factor at each payment date.

Key Insight: The swap rate is essentially a weighted average of forward rates, where the weights are the discount factors times the day count fractions. This is why the swap rate is closely linked to the shape of the yield curve.

Worked Example: Pricing a 2-Year Swap¶

Let’s price a concrete swap with the following terms:

• Notional: $10,000,000
• Tenor: 2 years
• Fixed Leg: Semi-annual payments, 30/360 day count
• Floating Leg: Quarterly payments, ACT/360 day count (simplified to 0.25 for this example)
• We need to find: The fair swap rate

We will use the discount factors from our table above. For simplicity, we will assume the day count fraction for each quarterly floating period is 0.25 and for each semi-annual fixed period is 0.50.

Floating Leg Cash Flows¶

First, let’s compute the forward rates and floating payments:

Let me walk through the calculation for Period 1:

• Forward Rate = (1/0.25) x (1.0000/0.9881 - 1) = 4 x 0.01204 = 4.82%
• Floating Payment = $10,000,000 x 4.82% x 0.25 = $120,500
• PV = $120,500 x 0.9881 = $119,066

Total PV of Floating Leg = $854,742

Fixed Leg Cash Flows¶

Now let’s work out what swap rate makes the fixed leg equal to $854,742. The fixed leg has four semi-annual payments (at 0.5, 1.0, 1.5, and 2.0 years):

Now solve for the swap rate:

Swap Rate = PV(Floating Leg) / (Notional x Sum of DF x DCF)

Swap Rate = $854,742 / ($10,000,000 x 1.8899)

Swap Rate = $854,742 / $18,899,000

Swap Rate = 4.523%

So the fair 2-year swap rate is approximately 4.52%. At this rate, the present value of the fixed payments exactly equals the present value of the expected floating payments. The swap has zero NPV at inception. Nobody is getting a deal, nobody is getting ripped off. At least in theory.

Verification: Fixed Leg Payments at 4.523%¶

The fixed payment each period: $10,000,000 x 4.523% x 0.50 = $226,150

Total PV of the fixed leg: $854,806, which matches our floating leg PV of $854,742 within rounding. The swap is fairly priced.

Key Insight: The swap rate is determined entirely by market observables (the discount factor curve). There is no subjective judgment involved. Two different banks using the same curve will arrive at the same swap rate. This is what makes the swap market so efficient and liquid.

Mark-to-Market: How the Value Changes Over Time¶

At inception, the swap is worth zero to both parties. But rates change every day. The moment the yield curve moves after you enter a swap, the swap develops a positive value for one party and a negative value for the other.

How Mark-to-Market Works¶

Suppose you entered the 2-year swap above as the fixed-rate payer at 4.523%. One month later, interest rates have risen by 50 basis points across the curve. Here is what happens:

1. Your fixed payments stay the same (4.523%, locked in).
2. Expected floating payments increase (forward rates are now higher because the curve shifted up).
3. The PV of the floating leg (which you receive) goes up.
4. The PV of the fixed leg (which you pay) stays roughly the same (or drops slightly because of higher discount rates).
5. The swap now has positive value for you. You are paying a below-market fixed rate.

Conversely, if rates fall by 50 basis points:

1. Expected floating receipts decrease.
2. You are now overpaying on the fixed side.
3. The swap has negative value for you.

The mark-to-market (MTM) value of the swap at any point in time is:

MTM = PV(Floating Leg) - PV(Fixed Leg) (from the fixed payer’s perspective)

This is exactly how a bank reports the profit or loss on a swap in its trading book. And it is why DV01 matters so much. If your swap has a DV01 of $45,000 and rates move 50 basis points against you, that is roughly a $2.25 million loss. Better have your risk limits set correctly.

The Convergence to Zero¶

Here is something elegant: as the swap approaches maturity, its value converges back toward zero (assuming rates haven’t moved dramatically). Why? Because there are fewer and fewer cash flows remaining. A swap with one payment left is just a single exchange of interest, barely worth anything. This is the “pull to par” effect, similar to what happens with bonds.

Swap Curves and Bootstrapping¶

You might have noticed that our entire pricing framework depends on having good discount factors. Where do they come from? Welcome to the world of bootstrapping.

What Is the Swap Curve?¶

The swap curve is a yield curve constructed from market swap rates at various tenors. It plots the par swap rate against maturity: the 1-year swap rate, the 2-year swap rate, the 5-year rate, and so on.

In practice, the swap curve is built from three types of instruments:

1. Cash deposits (for very short maturities, up to 3-6 months)
2. Eurodollar/SOFR futures (for maturities from 3 months to about 2-3 years)
3. Par swap rates (for maturities from 2 years out to 30+ years)

The Bootstrapping Process¶

Bootstrapping is the iterative process of extracting zero-coupon rates (and thus discount factors) from observed market prices. You start with the shortest maturity instrument and work your way out.

Here is the logic in simplified form:

1. Start with the 6-month deposit rate. That directly gives you the 6-month discount factor.
2. Use the 1-year swap rate. You know the 6-month DF already. The 1-year swap has two payments: one at 6 months and one at 1 year. You know everything except the 1-year DF, so solve for it.
3. Use the 1.5-year swap rate. You now know the 6-month and 1-year DFs. Solve for the 1.5-year DF.
4. Repeat for every tenor out to 30 years.

Each step uses the discount factors you have already found plus the new market quote to solve for the next unknown discount factor. It is like building a bridge one plank at a time, where each new plank rests on the ones you have already laid down.

Rule of Thumb: The swap curve is the backbone of fixed income pricing. Almost every interest rate product (bonds, caps, floors, swaptions, structured notes) is priced off discount factors derived from the swap curve. Get the curve wrong and everything else is wrong too.

Credit Risk in Swaps¶

For a long time, swaps were considered nearly risk-free because no principal is exchanged. But the 2008 financial crisis was a harsh reminder that counterparty credit risk is very real.

What Is Counterparty Risk in Swaps?¶

If you have a swap with a bank and that bank goes bankrupt, you might not receive the payments you are owed. Your swap had positive MTM value, meaning the bank owed you money. Now that money might be gone, or at best, you will be fighting for pennies on the dollar in bankruptcy court.

This is exactly what happened when Lehman Brothers collapsed. Counterparties with winning swap positions suddenly found themselves as unsecured creditors. Not ideal.

CVA: Credit Valuation Adjustment¶

To account for this risk, banks calculate a Credit Valuation Adjustment (CVA). CVA is essentially the expected loss from a counterparty defaulting, computed as:

CVA = Expected Exposure x Probability of Default x Loss Given Default

In practice, CVA reduces the value of a swap to reflect the credit risk of the counterparty. A swap with Goldman Sachs might have a small CVA (they probably won’t default). A swap with a highly leveraged hedge fund might have a significant CVA.

Since the 2008 crisis, the derivatives market has moved heavily toward central clearing through clearinghouses like LCH and CME. Cleared swaps require daily margin posting, which dramatically reduces counterparty risk. The vast majority of vanilla swaps are now centrally cleared, with bilateral (non-cleared) swaps reserved for more bespoke structures.

DVA and Bilateral CVA¶

It gets even more interesting. If your counterparty might default on you, the flip side is that you might default on them. That is DVA (Debit Valuation Adjustment), which actually increases your swap value from your own perspective. The combination of CVA and DVA gives you the bilateral CVA, reflecting the credit risk on both sides.

Yes, your own potential bankruptcy makes your assets look more valuable on paper. Finance is weird sometimes.

Real-World Usage¶

Let’s come back down to earth and look at who actually uses these instruments and why.

Corporates: Hedging Debt¶

The most straightforward use case. A corporation issues floating-rate bonds, then enters a swap to pay fixed and receive floating. The floating receipts from the swap offset the floating bond payments, leaving the company with a net fixed cost of borrowing. This is called a synthetic fixed-rate bond.

The reverse works too. A company with fixed-rate debt that wants floating exposure enters a swap to receive fixed and pay floating. The fixed receipts offset the bond coupons. Now the company effectively has floating-rate debt.

This flexibility is enormously valuable. A company can access whichever bond market offers the best terms and then use swaps to convert to the interest rate profile it actually wants.

Banks: Asset-Liability Management¶

Banks are natural swap users because of the fundamental mismatch in their business model: they fund themselves with short-term deposits (floating rate) and lend via long-term mortgages and loans (often fixed rate). This creates interest rate risk that can be massive.

By entering into swaps where they pay floating and receive fixed, banks can better align the interest rate sensitivity of their assets and liabilities. This is ALM (asset-liability management), and it is one of the most critical functions in any bank’s treasury department.

Insurance Companies and Pension Funds¶

These institutions have long-dated liabilities (insurance claims that may not be paid for decades, pension payments stretching 30+ years into the future). They use long-dated swaps (20-year, 30-year, even 50-year tenors) to manage the duration of their liabilities. When you hear about “liability-driven investing” or “LDI,” swaps are usually a central component.

The UK pension crisis of September 2022 was a dramatic illustration of what happens when LDI strategies involving swaps go wrong. Gilts (UK government bonds) plummeted in value, causing massive margin calls on swap positions, which forced pension funds to sell more gilts, which pushed prices down further, creating a doom loop that required Bank of England intervention. Swaps are powerful tools, but they demand respect.

Governments and Sovereigns¶

Sovereign debt management offices (DMOs) use swaps to manage the interest rate composition of their debt portfolios. A government that has issued mostly fixed-rate bonds but wants more floating exposure can use swaps instead of issuing new debt.

Speculators and Hedge Funds¶

Macro hedge funds use swaps extensively to express views on interest rates. If a fund believes the Fed will cut rates more aggressively than the market expects, it might receive fixed in a swap (betting that the floating rate it pays will decline). Relative value funds might trade the spread between swap rates and Treasury yields (the swap spread), or between swap rates at different tenors (curve trades).

A Note on LIBOR and the Transition to SOFR¶

If you have read any older textbooks on swaps, they all reference LIBOR (London Interbank Offered Rate) as the floating rate benchmark. LIBOR was the beating heart of the global derivatives market for decades. Hundreds of trillions of dollars in swaps, loans, and other instruments referenced it.

Then came the scandal. It turned out that the banks submitting LIBOR rates had been manipulating them for profit. The benchmark that underpinned the entire financial system was, to put it diplomatically, unreliable. Fines were levied. Traders went to prison. And regulators decided LIBOR had to go.

The transition to SOFR (for USD) and other risk-free rates (SONIA for GBP, ESTR for EUR) has been one of the largest infrastructure projects in financial history. Virtually complete now, it involved renegotiating and converting trillions of dollars in existing contracts. The key difference: SOFR is based on actual overnight repo transactions (roughly $1 trillion per day), not on banks’ estimates of what they could borrow at. Much harder to manipulate when you are using real transaction data.

For swap pricing, the mechanics are the same whether you use LIBOR or SOFR. The formula does not care which rate floats. But SOFR has some nuances (it is an overnight rate that gets compounded over a period, rather than a forward-looking term rate like LIBOR was), which affects how cash flows are determined.

Wrapping Up¶

Interest rate swaps are the workhorses of modern finance. They may not be as flashy as options or as headline-grabbing as credit default swaps, but they move more money than anything else in the derivatives universe. Every bank, every large corporation, every pension fund, and every sovereign government uses them.

The pricing framework is elegant in its simplicity: extract forward rates from the curve, discount everything back to today, and find the fixed rate that makes both legs equal. Zero NPV at inception. From that point forward, the swap’s value fluctuates as the yield curve moves, creating gains for one party and losses for the other. If you understand discount factors, forward rates, and the time value of money, you understand swap pricing. Everything else is just details (important details, but details nonetheless).

If you take one thing away from this article, let it be this: the swap rate is not some arbitrary number a banker made up. It is the precise fixed rate implied by the current term structure of interest rates. It is math, not magic. And once you see that, the entire derivatives market becomes a lot less intimidating.

The Bottom Line: An interest rate swap is just a bet on the future path of interest rates, packaged as an exchange of cash flows. Price it by making both sides equal at inception. Manage it by watching how the curve moves. And always, always know your DV01.

Cheat Sheet¶

Key Questions & Answers¶

What is an interest rate swap?¶

“An interest rate swap is a derivative contract in which two parties agree to exchange interest rate cash flows on a notional principal over a specified period. In a plain vanilla swap, one party pays a fixed rate and the other pays a floating rate (like SOFR). Only the net difference is exchanged on each payment date. No principal changes hands.”

How is a swap priced at inception?¶

“A swap is priced so that the present value of the fixed leg equals the present value of the floating leg, resulting in zero NPV at inception. The swap rate is the fixed rate that achieves this. It is determined by discounting expected floating payments (based on forward rates) and solving for the fixed rate that equates the two legs.”

What is the swap rate?¶

“The swap rate is the fair fixed rate in an interest rate swap, the rate that makes the contract worth zero at inception. It is essentially a weighted average of forward rates, where weights are discount factors times day count fractions. Swap rates for various tenors form the swap curve, a critical benchmark in fixed income markets.”

What is DV01 and why does it matter?¶

“DV01 (Dollar Value of a Basis Point) measures how much a swap’s market value changes for a one basis point (0.01%) parallel shift in interest rates. It is the primary risk metric for interest rate products. A swap with a DV01 of $50,000 will gain or lose approximately $50,000 for every basis point move in rates.”

How does mark-to-market work for swaps?¶

“After inception, the swap’s value changes as interest rates move. If rates rise, the fixed payer benefits (receives higher floating payments for the same fixed cost). If rates fall, the floating payer benefits. The MTM value is recalculated daily by re-discounting all remaining cash flows at current market rates.”

What is CVA?¶

“Credit Valuation Adjustment (CVA) is the adjustment to a swap’s value to account for the risk that the counterparty might default. It equals the expected exposure times the probability of default times the loss given default. Since 2008, most vanilla swaps are centrally cleared to mitigate this risk.”

Why did the market move from LIBOR to SOFR?¶

“LIBOR was based on bank submissions that were shown to be manipulated during the rate-rigging scandal. SOFR is based on actual overnight Treasury repo transactions (roughly $1 trillion daily volume), making it far more robust and transparent. The transition was completed globally and is one of the largest financial infrastructure changes in history.”

Key Concepts at a Glance¶

Sources & Further Reading¶

• Hull, J.C., Options, Futures, and Other Derivatives, Pearson (Chapters 7 and 33)
• Fabozzi, F.J., Fixed Income Analysis, CFA Institute / Wiley (Chapters on Swap Markets)
• Tuckman, B. & Serrat, A., Fixed Income Securities: Tools for Today’s Markets, Wiley
• Investopedia, Interest Rate Swap
• CME Group, Understanding Interest Rate Swaps
• ISDA (International Swaps and Derivatives Association), Interest Rate Derivatives
• Federal Reserve Bank of New York, SOFR: Secured Overnight Financing Rate
• LCH (London Clearing House), SwapClear
• Bank for International Settlements, OTC Derivatives Statistics
• Gregory, J., Counterparty Credit Risk and Credit Value Adjustment, Wiley

This article is for educational purposes only and does not constitute financial advice. Interest rate derivatives involve significant risk and require proper understanding before trading. Please consult a qualified financial professional before entering into any swap transactions. But if you’ve made it this far, you definitely know more about swaps than most people at the party. Use that power wisely.