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Im not sure if this is the right place to ask this question or whether Personal Finance & Money would be a better place. Basically I know that initially interest rate swaps are quoted based on the swap rate which is what the fixed-leg has to pay. However, if one entity holds a position in a swap that they wish to sell how would they quote it to other market participants. Would it be based on the value of that leg of the swap, or would they quote a new swap rate?

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The price of a swap is the rate on the fixed leg that puts the market value to zero. Swaps are typically quoted this way, so in your example it would be the fixed rate of a swap with the same dates and floating leg as your previous one.

However, if you wish to sell the swap you could also ask for a quote in absolute currency terms (could be negative or positive) of a swap that offsets your current position. In that case the MtM would most likely not be zero and depending on the size, maturity, typology (xccy?) and your particular CSA, this alternative could have additional charges (CVA, FVA, etc) .

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  • $\begingroup$ Known as a 'tear up', 'tearing up' etc. $\endgroup$ – Phil H Oct 19 '18 at 8:21

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