Interest Rate Swaps: Daily Rates Beat Discrete for Effective Hedging.
Interest rate swaps were compared using different reference rates to manage interest rate risk in loans. One reference rate matched the loan payment interval, while the other had a shorter maturity. The swap based on the matching interval was effective for hedging, but the shorter maturity swap was not as useful. While dynamic hedging was possible with the matching interval swap, it came with risks and higher costs, making it less practical.