Swap

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Description

A Swap is a derivative where two parties exchange one stream of cash flow against eachother. Usually at least one of the cash payment streams has a rate that is variable.

ThetaScript 

Model swap
import N "Notional"
import f_r "fixed rate"
import T "Maturity"
import bp "basis premium"
import EUR "Numeraire"
import r "Libor interest rate"
export V "value of swap(for fixed)"
 
c=0
loop T
    theta 1
    c=c+(r+bp/100-f_r)*N*EUR
end
V=c
end

Knock Out Swap

A Knock-Out Swap is a swap which is cancelled when a given condition is reached. For example, a swap can be knocked out if the LIBOR interest rate reaches a certain threshold.

ThetaScript 

Model KnockOutSwap
import N "Notional"
import f_r "fixed rate"
import T "Maturity"
import bp "basis premium"
import EUR "Numeraire"
import r " Libor interest rate"
import B "Barrier"
export P "value of swap(for fixed)"
 
P = E(V!)
 
c=0
cond=0
loop T
    theta 1
 
    % knock-out?
    if r > B
        cond=1
    end
 
    % knocked-out earlier?
    if cond < 1
        c=c+(r+bp/100-f_r)*N*EUR
    end
end
 
V=c
 
end

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