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Dv01 for interest rate swap

frm2008

New Member
I have asked similar question for CDS earlier. I know dvo1 is change in the value of swap if the curve moves by 1bps. How I can calculate dvo1 for an interest rate swap in excel.

Your help will be appreciated
 

David Harper CFA FRM

David Harper CFA FRM
Staff member
Subscriber
frm2008,

When I get a chance, I will add a page to the swap valuation spreadsheet on the member page to show DV01. But briefly, it is a good point b/c a swap sort of needs the DV01 since it does not have a yield per se.

But the procedure is similar to what we did for the CDS DV01 (at least in the case of "full simulation" instead of an approximation): we compute the value of the i rate swap (as we already do here).

Then we can duplicate the sheet (not elegant but quick) and take the LIBOR curve assumptions and add 1 basis point to each of them (parallel upward shock to the yield curve; if we just did one, we would be computing a key rate '01). This gives a slightly different swap value and the difference between the two swap values is the DV01 (or PV01).

David
 

msoler96

New Member
Hi David,

I was recently trying to price some IR swaps. I noticed that when I shock the yield curve up by 1bps at a single specific node, the DV01 is close to zero except at the node nearest the maturity. Nearly 100% of the DV01 for a parallel shift comes from the shock to the node near maturity.

I don't really understand this, since I would expect every node to have similar risk, perhaps slightly increasing the further away you are. Would it be possible to have an explanation of this phenomenon?

I have researched the forum and I believe the closest thread is the following but was not answered: https://www.bionicturtle.com/forum/threads/interest-rate-swaps-key-rate-duration.14041/

Thanks in advance,

Marc
 
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