Financial Risk Manager (FRM, Topic 4: Valuation and Risk Models, Fixed Income, Bruce Tuckman Chapter 2, Spot, Forward and Par Rates). Given the swap rate curve, we can infer the discount function (i.e., set of discount factors), spot rate curve, forward rate curve and par yield curve.
Could you please let me know what does mean about the zero–coupon swap curve is assumed to be flat at 3.5% per annum? Why we need calculate the spot rate from the given swap rate? Could you please let me know what is difference between spot rate and swap rate?
Hi @kellychi In the interest of saving time, I moved your question to this thread so that you can view my youtube video above (please see that above T4-25: Fixed Income: Infer discount factors, spot, forwards and par rates from swap rate curve) where I've tried to succinctly explain swap versus spot rates (the swap curve is the set/series of swap rates over time horizons, just like the zero/spot rate curve is a series/set of zero/spot rates). To be honest, when Malz refers to a "zero-coupon" swap curve, I'm not entirely sure why he prefaces with "zero coupon" .... in the FRM, we tend to just refer to the swap rate or swap rate curve (e.g., as Tuckman does, Tuckman is a better reference than Malz).