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Central Clearing of Interest Rate Swaps:a Comparison of Offerings

Central Clearing of Interest Rate Swaps:a Comparison of Offerings

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Published by Christopher Henry
Regulatory changes have motivated the development of a variety of so-
lutions for the clearing of interest rate swaps. Margin payments associated
with clearing lead to modications in cash ows which result in dierences
in the valuation between cleared and non-cleared swaps. We propose a
framework for computing these dierences and show that they lead to
two types of modications in contract value: a convexity eect and a
Net Present Value" (NPV) eect, which can be signicant for long-dated
swaps.
Regulatory changes have motivated the development of a variety of so-
lutions for the clearing of interest rate swaps. Margin payments associated
with clearing lead to modications in cash ows which result in dierences
in the valuation between cleared and non-cleared swaps. We propose a
framework for computing these dierences and show that they lead to
two types of modications in contract value: a convexity eect and a
Net Present Value" (NPV) eect, which can be signicant for long-dated
swaps.

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Published by: Christopher Henry on Nov 08, 2013
Copyright:Attribution Non-commercial

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11/08/2013

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Electronic copy available at: http://ssrn.com/abstract=1783798
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Electronic copy available at: http://ssrn.com/abstract=1783798
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