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Modelling the French Swap Spread


  • Avouyi-Dovi, S.
  • Jondeau, E.


Swaps are one of the major innovations of the 80s but there are little empirical studies on interest rates swaps (IRS), especially on US and European markets. To understand how swap pricing works, we estimate IRS valuation models for the US, German and French swap markets. On one hand, we derive swap rate from the market value of the swap contract formula. On the other hand, questioning the role of default credit risk in valuing the swap contract, we show that the swap rate can be expressed as a function of corporate bond rate and default risk indicators; the empirical analysis indicates some elements of validity for both approaches.

Suggested Citation

  • Avouyi-Dovi, S. & Jondeau, E., 1999. "Modelling the French Swap Spread," Working papers 65, Banque de France.
  • Handle: RePEc:bfr:banfra:65

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    References listed on IDEAS

    1. Minton, Bernadette A., 1997. "An empirical examination of basic valuation models for plain vanilla U.S. interest rate swaps," Journal of Financial Economics, Elsevier, vol. 44(2), pages 251-277, May.
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    7. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
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    15. J. Gregg Whittaker, 1987. "Pricing interest rate swaps in an options pricing framework," Research Working Paper 87-02, Federal Reserve Bank of Kansas City.
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    More about this item


    Swap market . Interest rate swaps . Swap valuation.;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models


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