Total return swap Department of Mathematics, （总回报互换数学系,）.pdfVIP

Total return swap • Exchange the total economic performance of a specific asset for another cash flow. total return of asset Total return Total return receiver payer LIBOR + Y bp Total return comprises the sum of interests, fees and any change-in-value payments with respect to the reference asset. A commercial bank can hedge all credit risk on a loan it has originated. The counterparty can gain access to the loan on an off-balance sheet basis, without bearing the cost of originating, buying and administering the loan. 1 The payments received by the total return receiver are: 1. The coupon c of the bond (if there were one since the last payment date Ti − 1) + 2. The price appreciation (C (T ) −C (T )) of the underlying bond i i−1 C since the last payment (if there were only). 3. The recovery value of the bond (if there were default). The payments made by the total return receiver are: 1. A regular fee of LIBOR + sTRS + 2. The price depreciation (C (T ) −C (T )) of bond C since the last i−1 i payment (if there were only). 3. The par value of the bond C if there were a default in the meantime). The coupon payments are netted and swap’s termination date is earlier than bond’s maturity. 2 Some essential features 1. The receiver is synthetically long the reference asse