Module 3 · Chapter 9

What the Swap Is Worth

A swap is worth what it would cost to replace it for the quarters that remain. You learn to read the bank's figure, and see the one time in the file a value became cash.

≈ 14 min read 8-question test

In this chapter

  • What a prepayment of the loan does, and does not do, to the hedge
  • How a bank values a swap, and why mid is not what you get
  • Why a hedge loses value exactly when it is working

9.1A swap's value in one paragraph

A swap is worth what someone would charge, or pay, today to take over its remaining payments. The bank works out that figure, called the mark, and sends it to Atlas in a statement. A mark is a value, not a bill, and nobody pays it unless the swap ends early. In this chapter part of Atlas's swap does end early, and the value becomes cash.

Key point

A value says who is ahead today. It becomes money only when a trade ends. Until then, the only cash is each quarter's net payment.

Also in this chapter

  1. The loan gets smaller, the swap does not
  2. Two ways back inside the policy
  3. Confirmation 3: ending part of a swap by agreement
  4. How the bank values a swap
  5. Bid, offer and mid
  6. Reading a statement, and disputing it
  7. Why the value moves, and when it turns
  8. Break Costs and break cost
  9. Is the swap debt? Three answers
  10. Block C of the Hedge Sheet
  11. Your job

Preview

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