Payer swap
Definition · Level 10 · Derivatives pricing
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Interest rate swap in which you pay fixed and receive floating: gains when rates rise, like being short a bond.
Example
Pay fixed on $200m 5-year, DV01 $90k → rates +8bp = +$720k.
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.
- Par swap rateFixed rate that makes a new swap worth zero; with a single curve, (1 − DFn) ÷ Σ τ·DFi.