Rmb Interest Rate Swap Arbitrage Trading Research

Interest Rate Swap (IRS), is an agreement between two companies to exchange cash flows in the fixed future. The agreement defines the dates when the cash flows are to be paid and the way in which they are to be calculated. In European and American market, Interest Rate Swap is one of the biggest in volume among interest derivatives. Therefore, it is an important instrument in the derivatives market. However, IRS nominated by RMB was just started for a few years. It is completely new here in China market. Since, there exist some defects in this market, especially pricing. Moreover, it lacks relative researches in pricing IRS in RMB, So, it is important to analysis the pricing of IRS.This paper firstly introduce what is Interest Rate Swap, the basic principle of IRS and the recently development of the IRS in China market. Then we try to summarize the points in relative research. Moreover, we analyze the pricing of interest rate swap in RMB from arbitrage point of view. On the basis of the above analysis, we conduct the empirical study in the prospects of the IRS rates and the key factors of swap spreads. Finally, we try to point out the defects of the IRS market in China, and states some policy suggestion.In this paper, we have two innovations. On the one hand, we use arbitrage perspectives to analyze IRS portfolio, so that we could pricing IRS in RMB. On the other hand, we use Granger causality test to analyze the prospects of the IRS rates, and use the switching autoregressive conditional heteroscedasticity model (SWARCH) to investigate the factors which may affect the interest rate swap spread.