Lesson 4 of 5 · 13 min

Swap price versus swap value

A swap's price is its fixed swap rate, set once at inception; its value starts at zero and, on any settlement date, equals the current settlement plus the present value of all remaining expected settlements.

In short

Price = the fixed swap rate $s_N$ : the no-arbitrage 'forward price', fixed for the swap's life.
Value = the swap's mark-to-market (MTM) worth to one side: $V_0 = 0$ at inception (ignoring transaction and credit costs), then it moves.
Forward analogy: MRR plays the spot price $S_T$ and $s_N$ the forward price $F_0(T)$ , so each period settles like $S_T - F_0(T)$ .
Periodic settlement value for the fixed payer: $(MRR - s_N) \times \text{Notional} \times \text{Period}$ ; the receiver's is the negative.
Value on a settlement date = current settlement value + PV of all remaining future settlements (expected at the implied forward rates).

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