The Implied Information Of Interest Rate Swap

According to the particularity of the Chinese market environment and FR007 Floating rate determination,this paper build a 5-factor affine interest rate model which used to uniformly describe China CDB debt interest rates and swap rate.Furthermore,we derivate the analytical solution of the pricing model and Kalman Filter is applied to estimate the parameters of the pricing model.Finally,importing the market data into the model to extract the implied information of the interest rate swap.This paper chooses FR007 interest rate swap and Shibor 3M interest rate swap as the research object to extract the implied information respectively,and models fit well.According to the different trading purposes,the paper further analyze the implied information in the Swap market.Analysis results show that there are three main trading modes,namely "IRS and Repurchase voucher" arbitrage trading,speculative trading and risk management,which have different influences on swap spreads across different periods.For the FR007 interest rate swap,in sufficient liquidity expectations,arbitrageurs are dominant,while during the bull market,there is a strong demand for risk management.For the Shibor 3M interest rate swaps,arbitrageurs have insufficient power,and investors are mainly engaged in risk management and speculation.Funds rate factor and the rising of funds rate factor and credit spread factor are constructed to explain swap spreads,the regression analysis results showed that the rising of funds rate factor,credit spreads has significant influence on FR007 and Shibor 3M swap spread.In addition,we explore the predictive power of the IRS.FR007 swap spreads have significant predictive power for PPI and industrial added value,while Shibor 3M swap spreads have no predictive powert for the CPI,PPI,industrial added value,Ml,exchange rate,the CSI 300 index.The information content of FR007 interest rate swap is larger,including the macro information related to price index and economic growth,but its correlation with monetary policy,exchange rate and stock market is weak.