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Interest-Rate Swaps and Arbitrage


  • Jiøí Málek


Three 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.

Suggested Citation

  • Jiøí Málek, 2001. "Interest-Rate Swaps and Arbitrage," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 51(2), pages 99-110, February.
  • Handle: RePEc:fau:fauart:v:51:y:2001:i:2:p:99-110

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    interest-rate swap; bonds; credit risk;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other


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