Swap duration

[maximus_decimus]

Wondering if this sounds right since principal is never echanged in a swap, only payments. From schweser: “To calculate the duraiton of a swap, add the duration of the instrument that replicates what you receive and subtract the duration of the instrument that replicates what you pay. For a recieve fixed and pay floating, add the duration of the fixed rate bond and subtract the duraiton of the floating rate bond.”
Since the principal is never exchanged, but does affect the duration of the fixed rate bond in the replicating portfolio (assuming you held the repllicating portfolio to maturity), how do you account for that in the swap?

 

[S2000magician]

By doing exactly what Schweser says to do.
The principal of the floating-rate bond is never exchanged, but does affect the duration of the floating rate bond. By incliding it on both sides the effect cancels and you’re left with the net duration of the fixed-rate vs. floating-rate coupon payments.