Floating-Rate Payer: Dollar Duration Swap = ($Duration of Fixed-rate Bond) - ($Duration of Floating-rate Bond) It doesn’t seem to specify in the text but logic says that for a Fixed-Rate Payer: Dollar Duration Swap = ($Duration of Floating-rate Bond) - ($Duration of Fixed-rate Bond) Is this correct?
Yup! It’s Dollar Duration of Swap = $Duration of Asset - $Duration of Liability. Doesn’t matter which side you’re on, just remember asset - liability. Hmm… asset-liability=equity? I guess we could consider the dollar duration of the swap as the equity… and if it`s positive it would be an asset, otherwise a liability… does that make sense?
total sense… i don’t know why they didn’t present it in terms of “Asset” and “Liability” in the text… that’s just silly.
thank you Schweser WOC… !
alternatively, for swaps you ADD what you receive and SUBTRACT what your give. So for a fixed rate payer:: *you are paying fixed (therefore subtract) *you are receiving float (therefore add) dollar duration for fixed rate payer = (dollar duration of float) - (dollar duration of fixed)
So, long (own) a fixed-rate bond => “Receive” fixed coupon => Asset => + short a floating-rate bond => “Pay” floating coupon => Liability => - Am I right ?