In a particular sum we were to find the Value of the swap.
Since the term structure is flat, I am trying to do in the particular ways :-
Using Begin Mode :- 150000 Pmt, 10000000 FV, 5 N, 1.2 I/Y. CPT PV = 10153432
Using End Mode 150000 Pmt, 10000000 FV, 4 N, 1.2 I/Y, CPT PV = 10116484 + 150000 ( Added one coupon as we are calculating using end mode )
The value using both begin mode and end mode should come the same but mine is coming different.
Please guide if anyone can calculate using their Calci.
Reference Derivatives :- Pricing and valuation of forward commitments Page 15 Example 19. (In the video sir has solved via both methods but mine answer is coming different using end mode and begin mode).
In example 19, you are standing at t = 0.5 and not t = 1.
Using END mode, you may solve as follows :
150000 Pmt, 10000000 FV, 4 N, 1.2 I/Y, CPT PV = 10116484 + 150000 = $10,266,484. The same is at t = 1. To value the Swap, you need bring the amount at t = 0.5, so the same comes as 10266484/(1.012)^0.5 = $10,205,434.
Using BGN mode, you may solve as follows :
150000 Pmt, 5 N, 1.2 I/Y, CPT PV = $7,32,423.09. This comes at t = 1, because of BGN mode
Separately value the Principal Part :
$10,000,000 PV, 4 N, 1.2 I/Y, CPT PV = $9,534,061.52. This comes to t = 1 as well, since no PMT, normal TVM.
Add them up : $7,32,423.09 + 9,534,061.52 = $10,266,484.61. Once again, at t = 1
At t = 0.5, 10266484/(1.012)^0.5 = $10,205,434.