I was hoping somebody can help me with regards to the swap fixed rate. I understand how to calculate the swap rate at initiation, and to value a swap XX days after initiation, but what happens to the swap fixed rate AFTER the floating rate is reset to par on each settlement date? Does the fixed rate stay the same throughout the entire swap period, or does it have to be recalculated using the new libor rates / discount factors?
For example, take a 1 year quarterly swap, with a fixed rate of 5.6% annual (1.4% quarterly), and the floating rate at initation was 5% (1.25% quarterly). Move forward 3 months, right after the first settlement period (where either the pay fixed or receive floating was owed $$), and the floating rate is reset (say, to 5.2%). Would I have to recalculate the fixed rate using the new libor rates (which would be (1-Z3)/(Z1+Z2+Z3)), or will it still stay the same from when the swap originated (at 5.6%)?