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Business, 05.05.2020 08:13 ajyoung3142005oztpya

Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 8%. An off-market swap would then be defined as a swap of LIBOR for a fixed rate other than 8%. For example, a firm with 12% coupon debt outstanding might like to convert to synthetic floating-rate debt by entering a swap in which it pays LIBOR and receives a fixed rate of 12%. What up-front payment will be required to induce a counterparty to take the other side of this swap? Assume notional principal is $25 million.

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Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 8%. An off-mark...
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