# swap discount factors...

I’m a little confused when having to value a swap X # of days after initiation date. For example, if you’re valuing a semi-annual swap, 5% fixed, \$1MM notional, with180 day LIBOR of 3.7% 90 days after initiation when 90 day LIBOR is 3.4% and 270 day LIBOR is 3.7% what are the proper discount factors for present valuing each side of the deal? Perhaps since the rates given are annualized I’m getting thrown off, or not accounting for right cashflow periods, ie quarterly, semi-annual, etc. not sure. I understand how the fixed and floating cash flows are structured so I’ll get the negative/postive value right, just not the exact dollar figure. thanks. John

Always use the annual rates given. You adjust for the period using (1+0.065(90/360), etc. So, even if you are calculating the PV of the next payment due in 50 days, you still use the annual rate. For the floating part, the payment due in 50 days (as an example) is the LIBOR rate set at the beginning of the period, plus \$1 for principal. For the fixed part, sum up all the PVs of all upcoming payments plus \$1 of principal, using new rates given