Can someone shed some light on how I should go about calculating a 20 year swap rate six months from today - is it the same calculation as a Forward Rate?
The swap rate is just the single discount rate that makes the PV of all the forward payments based on the market’s current LIBOR fwd rates = 0. If you know the 20 year swap rate you know the fwd discount rate for all but the first and last payments. The first is going to be simple because it’s just 6 month LIBOR and the last is just something like the average rate implied by the difference between 15-yr swaps and 20-yr swaps or whatever is quoted out there (which is farther out than I really know much about).
So is it possible, or correct, to calculate a forward swap rate using the standard forward rate calculation? (using an arbitrage argument) Thanks for the help.
fantastic - thanks.