Tenor Basis Swap Formulae

4 Pages Posted: 27 Apr 2017

See all articles by Nicholas Burgess

Nicholas Burgess

University of Oxford, Said Business School, Students

Date Written: December 30, 2015

Abstract

A Tenor Basis Swap, also known as a floating-floating interest rate swap, is a financial instrument whereby floating cashflows from two different interest rates are exchanged, typically floating interest rates determined from benchmark Libor indices of the same currency are exchanged e.g. 3M Libor vs 6M Libor cashflows.

Investors trade Tenor Basis Swaps for several reasons including to hedge or switch floating cashflows to a more preferred fixing frequency, for duration or risk management or to manage liquidity risk . The instrument is of course also used for speculative purposes.

Tenor Basis Swaps are typically quoted in financial markets by the Tenor Basis Spread. In this paper we outline the present value calculation for Tenor Basis Swap pricing and demonstrate how to calculate the Tenor Basis Spread.

Keywords: Tenor Basis Swaps, Basis Spread, Present Value, Pricing, Annuity

JEL Classification: C00, C02, D46, E40, E44, E50, F00, F30, G10, G12

Suggested Citation

Burgess, Nicholas, Tenor Basis Swap Formulae (December 30, 2015). Available at SSRN: https://ssrn.com/abstract=2959605 or http://dx.doi.org/10.2139/ssrn.2959605

Nicholas Burgess (Contact Author)

University of Oxford, Said Business School, Students ( email )

Oxford, OX1 5NY
United Kingdom

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