## An empirical analysis of interest rate swap spreads

This paper studies the market price of credit risk incorporated into one of the most important credit spreads in the financial markets: interest-rate swap sprea. This paper examines the relationship between the Australian dollar interest rate swap spread and the term structure of the interest rates, and also the This article contains both a theoretical and an empirical analysis of the components of interest rate swap spreads defined as the difference between the fixed We then analyze the relationship between the swap spreads in the two markets. Our main empirical results are that:(1) the correlations between yen and dollar

## Abstract. At the time of initiation, interest rate swaps are of zero market value to the Selender (1995), and Minton (1997) for the empirical determinants and behavior of swap spreads. others, analyze the effect of credit risk on swap pricing.

This paper studies the market price of credit risk incorporated into one of the most important credit spreads in the financial markets: interest rate swap spreads. Our approach consists of jointly modeling the swap and Treasury term structures using a general five-factor affine credit framework and estimating the parameters by maximum likelihood. Interest rate swaps, frequently used for hedging against interest rate risks, are an invaluable tool in financial institutions' risk management repertoire. We model swap rates for various currencies using the principal components of the term structure of the swap spreads and macroeconomic indicators. Chung and Chan (2010) conduct an analysis of the U.S. swap market, and their empirical results indicate a positive relationship between interest rate levels and swap spreads. However, Fang and This article contains both a theoretical and an empirical analysis of the components of interest rate swap spreads defined as the difference between the fixed swap rate and the risk-free rate of swap rate which is deﬁned as the yield of a recently issued Treasury of the same maturity as the swap contract, plus the so-called swap spread. Arguably, the central empirical issue surrounding swaps is what determines interest rate (IR hereafter) swap spreads. These spreads have varied from a low of roughly 25 basis points Swap spreads are the difference between the swap rate (a fixed interest rate) and a corresponding government bond yield with the same maturity (Treasury securities in the case of the United States). For example, if the current market rate for a 5-year swap is 1.35 percent and the current yield on the 5-year Treasury note is 1.33 An Empirical Analysis of US Interest Rate Swap Spreads during the Sovereign Crisis of the Euro Zone. This paper analyzes US interest rate swap spreads in relation to the sovereign crisis of the Euro zone. The results reveal that swap spreads of 5- and 10-years incorporate default risk positively in accordance with the theory. According to Ito

### Swap spreads are the difference between the swap rate (a fixed interest rate) and a CFA Institute. ^ "an empirical analysis of interest rate swap spreads" (PDF).

1 Jan 1994 our empirical hypotheses. A. Bounds for Swap Spreads. In the following we will describe a plain vanilla fiXed/floating interest rate swap. 10 Oct 2013 On the other hand, the impacts of slope, TED spread, and volatility are similar to Ito (2010). Steeper yield curve causes narrower swap spreads in This paper studies the market price of credit risk incorporated into one of the most important credit spreads in the financial markets: interest-rate swap sprea. This paper examines the relationship between the Australian dollar interest rate swap spread and the term structure of the interest rates, and also the

### An Empirical Analysis of Interest Rate Swap Spreads. Keith C. Brown, W.V. Harlow and Donald J. Smith. The Journal of Fixed Income Spring 1994, 3 (4) 61- 78;

1 Jan 1994 our empirical hypotheses. A. Bounds for Swap Spreads. In the following we will describe a plain vanilla fiXed/floating interest rate swap. 10 Oct 2013 On the other hand, the impacts of slope, TED spread, and volatility are similar to Ito (2010). Steeper yield curve causes narrower swap spreads in This paper studies the market price of credit risk incorporated into one of the most important credit spreads in the financial markets: interest-rate swap sprea. This paper examines the relationship between the Australian dollar interest rate swap spread and the term structure of the interest rates, and also the This article contains both a theoretical and an empirical analysis of the components of interest rate swap spreads defined as the difference between the fixed We then analyze the relationship between the swap spreads in the two markets. Our main empirical results are that:(1) the correlations between yen and dollar

## Specifically, our study examines the relationship between the Australian dollar interest rate swap spread and the term structure of default-free interest rates, and also reexamines the determinants of interest rate swap spreads using Australian data. Our study extends the current literature in a number of important ways.

1 Jan 2013 Interest rate swaps[1] have been one of the most popular and fastest growing derivatives over the of interest rate swaps in US swaps market, focusing on the determinants of swap spread. 6 Empirical results and analyses. interest rate swap.1 The bondholder effectively transforms the pay-off, where she pays related studies use stock market returns and various volatility indexes to Empirical evidence for the association of swap spreads and credit spreads is the results of previous empirical studies on credit spreads.15. The change in the level of interest rates is estimated by Principal Component Analysis. studies that the US dollar and its interest rates play an important role in determining the CIP deviations. Keywords: covered interest rate parity, swap spreads,

interest rate swap.1 The bondholder effectively transforms the pay-off, where she pays related studies use stock market returns and various volatility indexes to Empirical evidence for the association of swap spreads and credit spreads is