Compounding Swap Valuation Practical Guide
Description
A compounding swap is an interest rate swap in which interest, instead of being paid, compounds forward until the next payment date. Compounding swaps can be valued by assuming that the forward rates are realized. Normally the calculation period of a compounding swap is smaller than the payment period. For example, a swap has 6-month payment period and 1-month calculation period (or 1-month index tenor). An overnight index swap (OIS) is a typical compounding swap. This presentation gives an overview of compounding swap product and valuation model.
Notes
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IrCompoundingSwap-32.pdf
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