Par swap rate
Definition · Level 10 · Derivatives pricing
Keep reading with Tradecraft
You’ve read your 3 free definitions this month. Tradecraft explains all 738 terms and strategies, with the lessons that teach them, flashcards that come back before you forget, quizzes and a payoff lab.
Fixed rate that makes a new swap worth zero; with a single curve, (1 − DFn) ÷ Σ τ·DFi.
Example
DFs 0.97 and 0.94 → 0.06 / 1.91 = 3.14%.
Where Tradecraft teaches it
Level 10 · Derivatives pricing, in the lesson “Rates derivatives: discount factors, FRAs & swaps”: Discount factors, forward rates, FRAs, swaps, OIS benchmarks, caps, floors, swaptions and swap spreads.
Related terms
- Discount factorToday’s value of 1 paid at date T: 1/(1 + z)^T or e^(−zT) — the price of a zero-coupon bond per unit of face.
- Forward rateRate for a future period locked in by today’s curve: (1 + z2)² = (1 + z1)(1 + f).
- FRA (forward rate agreement)Contract fixing the rate on a future period — a 3×6 locks the 3-month rate starting in 3 months — cash-settled against the fixing.
- Interest-rate cap / floorStrips of options on a floating rate: the first pays when fixings exceed the strike (a borrower’s hedge), the second when they fall below it (a…
- OIS (overnight index swap)Swap of a fixed rate against a compounded overnight rate — €STR, SOFR, SONIA.
- Payer swapInterest rate swap in which you pay fixed and receive floating: gains when rates rise, like being short a bond.