Interest Rate Swaps Quant Interview Guide
Interest rate swaps quant interview guide for fixed legs, floating legs, par swap rates, discounting, DV01, and hedging.
Candidates discussing fixed-floating swaps, rates risk, and valuation.
A vanilla swap exchanges fixed and floating payments
In a fixed-floating interest rate swap, one side pays a fixed rate and receives floating, while the other side does the opposite.
The par swap rate sets initial value near zero
The par rate is the fixed rate that makes the present value of fixed and floating legs match at inception under the chosen curves.
Concrete example
A payer swap pays fixed and receives floating. If rates rise after trade inception, the payer swap can gain value under standard assumptions.
Discounting assumptions matter
Collateral, overnight discounting, projection curves, and payment conventions can affect valuation. Do not treat every swap as one-curve pricing.
Common mistakes
Candidates often memorize fixed-payer direction without explaining cash flows. Start from payments and discounting, then discuss risk.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.