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Calculating Interest Rate Swap DV01 by Bumping the Yield Curve

Article Quant Q&A · Author: Stefan Müller
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Summary

The document answers a question about measuring the DV01 of a European interest rate swap when the yield curve is not flat. The proposed method is to value the swap using the current curve, bump the curve by one basis point, revalue it, and take the difference between the bumped and original net present values. This finite-difference change gives the swap's sensitivity to that curve shift.

The answer is concise and does not specify whether to bump every curve node in parallel or use key-rate shifts, how to choose the bump direction, or how to handle the swap's fixed and floating legs in valuation. It also gives no worked example or numerical result. The method therefore supplies the core practical idea, but implementation depends on the curve construction and risk convention being used. The questioner's bond-duration formula is not developed further; the response focuses on repricing the swap under a bumped curve.

Key ideas

  • Compute the swap's original net present value from the current yield curve.
  • Bump the yield curve by one basis point and revalue the swap.
  • The difference between bumped and original value estimates DV01 for the specified curve shift.
  • The response does not define curve-bump conventions or provide a worked calculation.

Tags

Fixed incomeDerivatives pricingRisk management
Full text
# Interest Rate Swap DV01


# Interest Rate Swap DV01












thank you in advance anyways! I do have a question that drives me mad.

How do i calculate the Swap DV01 for a Interest Rate Swap?

I think for a bond i multiply the discounted cashflows times the point in time, and divide it through the bond price to end up with duration and thus i can end up with dollar value of 1 bp.

But for a european IRS i do not know.

I think there exists the cash formula, but this suggests a flat interest curve which is not applicable.

KR and thanks everybody!

## Answer by Randor (score 1)

https://quant.stackexchange.com/a/30104

you can calc it as the difference in npv you get when you bump the yield curve and calc your npv , vs your original npv

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.