How do we replicate a forward swap using ordinary swap? Do we have either sensitivity or present value on forward interest rate swap prior to the effective date?
Say you received on a 5y5y swap at 2% in 100m notional.
You could directly simulate this via receiving a 10y swap at 2% in 100m and paying a 5y swap at 2% in 100m.
The first 5y worth of cashflows will fully net out leaving the residual swap. This is a permanent replication, i.e. once you have executed all trades there is no need for dynamic hedging at different market levels to maintain the cashflow neutrality.
However, in practice the market might only permit you to replicate with 10y and 5y swaps at market rates (i.e. other than 2% on the forward), which generally creates some residual cashflows that will also need hedging with other swaps, but those are quite small comparatively.