Calculating the Effects of Interest Rate Swaption at Expiration With Different Libor Rates and Present Value Factors. Comparison With the Balance of Payments to Determine the Outflow Required in Relation to the Inflows

In this article, we calculate the effects of interest rate swaption at expiration with different LIBOR rates and present value factors. We compare our results with the balance of payments financial account to determine the outflow required in relation to the inflows. Our sample consists of data over the period 2000 to 2020. The integration of an interest rate swap contract and an option forms a swaption. The purpose of swaption is to transfer or hedge credit risk. As they are over- the- counter instrument (OTC), they are more tailored to meet specific needs of the counterparties. Thus, there is significant difference with exchange traded derivative products such as standardized futures and options. A standardized swap contract involves the exchange of principals, regular coupon payments and return back of the principal in addition to the last interest payment at the expiration of the swap agreement. They are used to hedge or to speculate on the spreads through arbitrage. We find that interest rate swaption with different LIBOR rates and present value factors create more inflow than outflow in the financial account of the balance of payments