Swap Valuation Between Payment Dates Includes Accrued Interest

Summary

The document answers whether accrued interest should be added separately when valuing a swap between payment dates. Its guidance is to discount and sum the cash flows from both legs; that present value is already an inclusive, or dirty, value that accounts for accrued interest.

This amount is suitable for marking the swap to market or valuing an unwind, so a separate accrued-interest calculation is unnecessary in the approach described. The response is concise and gives no numerical example or detailed treatment of conventions, payment schedules, or alternative valuation setups.

Key ideas

• Discounting and summing a swap’s leg cash flows produces a value that includes accrued interest.
• The resulting dirty value can be used for marking to market or valuing an unwind.
• The described approach does not require accrued interest to be calculated separately.

Tags

# By swap valuation, is accrued interest calculated?


# By swap valuation, is accrued interest calculated?












If I treat the 2 legs as bonds, and I want to calculate the present value somewhere between 2 payment date, should I calculate accrued interest?

## Answer by Helin (score 1)

https://quant.stackexchange.com/a/24459

When you sum up all the discounted cash flows, you effectively a "dirty price" (i.e., inclusive of "accrued interest"). This quantity is used for marking to market or unwinding. You don't need to worry about "accrued interest" separately.

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.