Module 8 · Advanced
Interest-rate swaps
An interest-rate swap is the most-traded derivative on Earth, and the idea is simple: two parties swap interest payments. One pays a fixed rate; the other pays a floating rate (today, SOFR). No principal changes hands — just the interest, on an agreed notional.
Why? To change your rate exposure without buying or selling bonds. A company with a floating-rate loan can swap to fixed to lock its costs; an investor can add rate risk instantly. The par swap rate is the fixed rate that makes the two legs worth exactly the same today — so a fresh swap starts at zero value. Lock in a rate away from par and the swap is immediately worth money (or owed). Its DV01— dollars per 1bp — is why swaps are the market's main rate-hedging tool.
🎛 Swap pricer
Par (fair) swap rate
4.756%
makes the swap worth $0
Swap value (receive fixed)
-$1,118,261
you receive below par
DV01
$43,717
per 1bp rate move
A swap trades a stream of fixed payments for a stream of floating (SOFR) ones — no principal changes hands. The par swap rateis the fixed rate that makes both legs worth the same today, so the swap starts at zero value. Lock in a fixed rate above par and the receive-fixed side is worth money; below par and it's a liability. Its DV01makes swaps the market's main tool for adding or hedging rate risk. Educational tool — not investment advice.
Things to try
- • Set your fixed rate to the par rate — the swap is worth ~$0, by definition.
- • Push the fixed rate above par — the receive-fixed swap gains value; below, it's a liability.
- • Increase the tenor — DV01 grows, because a longer swap has more rate sensitivity.