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Swaps: Plain and Fanciful
Author(s) -
LITZENBERGER ROBERT H.
Publication year - 1992
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1992.tb03996.x
Subject(s) - swap (finance) , interest rate swap , interest rate derivative , bankruptcy , foreign exchange swap , financial economics , economics , business , actuarial science , exchange rate , monetary economics , finance , interest rate , interest rate parity
The outstanding face amount of plain vanilla interest rate swaps exceeds two trillion dollars. While pricing and hedging of such swaps appear to be quite simple, many existing theories are based on the incorrect characterization of a swap as a simple exchange of a fixed for a floating rate note. This characterization is not consistent with standarized swap contracts and the treatment of swaps in bankruptcy. This paper provides an alternative perspective on swaps.