Duration of pay fixed receive floating swap

CFA Level III Derivatives
#1

I have the following doubt:

on 5Y semi annual swap in which I pay fixed and receive floating on a semi annual basis, how is duration calculated for each leg?

thanks in advance

#2

If you pay fixed - that’s a cash outflow. So that side of the swap has negative duration.

But you have to combine it with the side youre recieiving. The duration of a floater is always between 0 & 0.5. In a semi annual swap though you’d still divide it by 2. So, if they told you the duration was 0.5 you’d really use 0.25 in your calcs.

So, you take the negative duration figure that you calculated, and add the other side for the swaps duration. Usually they’ll just give you the floater side, but make you calculate the fixed side…I think.

#3

and how do I calculate the fixed side?

#4

A common rule of thumb is 75% of the time to maturity.

If they need you to calculate the duration of the swap, they’ll need to tell you the duration of the fixed leg, one way or another.

#5

Thank you

#6

My pleasure.