Swap Portfolios

Interest Rate Swaps
An interest rate swap is a contract that is swapping the interest rate payments and receipts.
This is usually fixed for floating or vica versa.
This type of contract can be thought of as a combination of a long position in a fixed rate bond with a coupon equivalent to the swap rate with a short position in a floating rate note paying the floating index as the swap

Assuming that the valuation is at the reset date of the floating rate leg there is no risk on the floating rate side.
The only asset that we need to value is the fixed rate bond which was shown earlier.

If the adjustment is to be conducted on a date other than the reset date and adjustment must be made to add the redemption amount of the hypothetical floating rate note plus the next interest payment amount into the mapping procedure.

We use "stripped interest rates" at standard roll-over dates along the yield curve.