Research On Pricing Of Interest Rate Swaps

This thesis purposes to anatomize the Interest Rate Swaps (IRS). By deducing the pricing model, which is valuable to IRS transaction. Pricing the IRS accurately can keep away from system risk in whole aspect. If the credit risks are not taken into count in pricing model, the system risk will expand. It will do harms to the financial system .To inquiry the new method more deeply. Some things were done in this paper.Firstly, the author reviews the theory and empirical evidence of IRS. Earlier theories of IRS tried to explain the economic principles. Later, some scholars did the research of pricing model.Secondly, Compared with traditional methodology research, it has several characteristics: (1) As to the method of research, it inherits zero-coupon-pricing-model. As for the adjustment of default risk, it introduces the conditional default probability. (2) In order to make the pricing models feasible in the current markets, the pricing model try to simplify the variables. Consider with regulate coefficient of default risk which we obtained through calculate protocol's future value the author calculate pure interest. In the model, two situations are considered. One is the discrete situation in which dealers will default only in transaction day .The other is the continuous situation in which dealers will default in any time of the IRS term. From the two situations, the author finds that the pricing model structures are consistent. The only difference is the calculating of default probability.At the same time, At last, the author used method of regression and statistics to analysis two group of date for inspect model's reliability and practicality .The conclusion is that the term of IRS influences the price and credit level influences the price, too.