Pricing interest rate swaps in Malaysia

J.R. Davies, C.K. Fui, David J. Hillier, Andrew P. Marshall

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This paper compares the theoretical price of interest rate swaps implied from the yield curve with the actual Kuala Lumpur Interbank Offer Rates used for swap resets in the Malaysian swap market for both semi-annual and annual interest rate swaps between 1996 and 2002. As far as we are aware no previous paper has considered pricing swaps in a less established derivative markets. Our empirical results indicate significant and persistent differences between the theoretical implied price and the actual reset price for both swaps over the sample period. This finding has implications for traders and banks in pricing swaps in Malaysia and more generally for pricing swaps in less established or illiquid markets or where capital controls have been introduced.
Original languageEnglish
Pages (from-to)493-507
Number of pages14
JournalReview of Pacific Basin Financial Markets and Policies
Volume7
Issue number4
DOIs
Publication statusPublished - Dec 2004

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Pricing
Swaps
Interest rate swaps
Malaysia
Traders
Illiquid markets
Yield curve
Empirical results
Derivative markets
Capital controls

Keywords

  • pricing
  • interest rate
  • malaysia
  • swap market

Cite this

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Pricing interest rate swaps in Malaysia. / Davies, J.R.; Fui, C.K.; Hillier, David J.; Marshall, Andrew P.

In: Review of Pacific Basin Financial Markets and Policies , Vol. 7, No. 4, 12.2004, p. 493-507.

Research output: Contribution to journalArticle

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