Interest-Rate Swaps and Arbitrage
AbstractThree approaches toward the determination of fixed swap rates are presented in this article: a swap as a portfolio of bonds with a fixed and floating coupon, a swap as a portfolio of forwards, and a swap as the difference between the cap and the floor (zero-collar). Later in the paper, credit risk is taken in consideration. The credit risk of interest-rate swaps is much lower than that of loans or corporate bonds. Empirical research is presented to support the analysis. One of the most important determinants of credit risk in a swap spread is the yield curve slope.
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Bibliographic InfoArticle provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.
Volume (Year): 51 (2001)
Issue (Month): 2 (February)
interest-rate swap; bonds; credit risk;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G39 - Financial Economics - - Corporate Finance and Governance - - - Other
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