I am kind of confused about how to approach the following question.
Suppose I enter into a interest rate swap (IRS) with counter party C. Details are : Fixed rate rate receiver, floating rate payer :C;
Duration : 5 years, Coupon payments: quarterly, Notional Principal: 100 million Fixed Rate: 4% per annum quaterly basis.
Given the interest rates follows a normal distribution with mean standard deviation 10perecent; and 95 percent confidence interval.
What is the pre settlement risk of counterpart C at each payment date over the tenure, and plot the risk of 20 potential credit exposure.
Answer: Shouldn't all the payment from Counter party C should all be the same? I am not getting the concept or how to approach this question.