Swap - Fixed rate versus float rate duration

Hi guyz,

In a swap, being a fixed rate payer why do we multiply the maturity of the swap by 75% to get the duration of the fixed leg swap.

Because the fixed leg of the swap (which has longer duration) can be deemed as a fixed-rate bond and usually fixed-rate bonds have a duration equal to 75% of their life.

Hope it helps


That’s better.

much appreciated S2000magician.

Thanks for the info. Is the concept mentioned anywhere in the book? Or it is more based on practical experiences.

I don’t recall if it’s mentioned in the curriculum or not.

A (very, very rough) rule of thumb.

you need to read the white text well in the CFA Level III curriculum, definitely

Hello cpk123!!!

I am perplexed with how curriculum calculates the duration of the float component and rationale behind the calculation. Would you please explain me.

float = average of the time period the floating leg is due at.

E.g. a quarterly period float leg - has 0 duration at the start, and resets to the par value at the end of a quarter year. So average of 0 and 0.25 = 0.125 is the duration of the floating quarterly swap.

For a half year floating leg = (0 + 0.5)/2 = 0.25