Extending Swap Duration from Spot-Starting to Forward-Starting Contracts

Summary

The document introduces interest rate swap duration by describing the spot-starting calculation: compare the duration of the fixed-rate leg with that of the floating-rate leg. It frames the legs as similar to fixed-rate and floating-rate bonds, respectively, and asks how to apply this reasoning to a swap whose start date is in the future.

The example is a EUR swap with a six-month Euribor floating rate and a ten-year term, starting three months from now. The document does not provide a calculation method, valuation conventions, or an answer. It therefore serves mainly as a question that identifies the challenge of handling the forward start; practitioners would need additional material to determine how discounting, cash-flow timing, and the chosen duration measure enter the calculation.

Key ideas

• Spot-starting swap duration is framed as the fixed-leg duration less the floating-leg duration.
• Each swap leg can be analyzed similarly to a fixed-rate or floating-rate bond.
• The document asks how to extend this approach to a swap that starts in the future.
• It gives no calculation procedure or answer for the forward-starting case.

Tags

# Duration of forward starting swap


# Duration of forward starting swap












For a spot starting interest rate swap, the duration is calculated as the duration of the fixed rate leg less the duration of the floating leg. Each of these calculations is akin to calculating the duration of a fixed (or floating) rate bond.

How do I calculate the duration of a forward starting interest rate swap, for instance a 10Y EUR swap (floating rate 6M Euribor) starting in 3 months? Any help or reference is much appreciated.

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