Glossar
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Saturday, August 20th, 2011An interest rate swap in which there are not one but two fixed rates. Which of the two is payable/receivable depends on whether Libor has reached a predetermined trigger point during each periodic Libor setting. For example, a floating-rate borrower who believes that rates will not rise as quickly as the implied forward curve predicts [...]
Power Libor swap
Thursday, August 18th, 2011More generally, any leveraged swap that pays a multiple of Libor usually in exchange for a greatly increased fixed rate if interest rates move against the end user. Power Libor swaps often contain complex embedded options. The most notorious example is the five-year/30-year swap entered into by Procter & Gamble whose formula dictated that for [...]
Polynomial swap
Tuesday, August 16th, 2011An interest rate swap in which polynomial equations (e.g., Ax2+bx+C) are applied to the Libor leg creating payment profiles that can be tailored to outperform vanilla swaps within precisely defined interest rate boundaries. The positions created give the precision of exotic options without the associated all-or-nothing profiles.
Periodic reset swap
Sunday, August 14th, 2011An interest rate swap whose floating payments are reset according to a pre-agreed schedule or index. Usually, the floating-rate payment is based on the average rate of the reference index over the previous period rather than its level on the reset date. Variants include the window reset swap a type of periodic reset swap in [...]
Performance swap
Saturday, August 13th, 2011If Libor does breach the trigger level, then the counterparty continues to pay the at-market fixed rate but also receives the at-market fixed rate. If Libor does not breach the trigger level the fixed-rate payer has fixed at below-market levels. If it does the swap effectively disappears for that period but a rebate is paid [...]
Lookback swap
Thursday, August 11th, 2011In a three-year deal with six resets, for example, the holder could receive six-month Libor plus 120bp and pay the highest daily six-month Libor rate in each six-month period. Nearly-perfect swap An interest rate swap in which a fixed rate is swapped into a low, off-market floating rate linked to a reference index such as [...]
Libor regulating swap
Tuesday, August 9th, 2011An interest rate swap under which one party receives Libor and pays a blended rate calculated as the combination of a predetermined fixed rate and a predetermined floating rate. The blended rate is capped at a maximum. It sits halfway between the incremental fixed {floating} swap and the semi-fixed swap. The former links interest payments [...]
Linear forex-linked swap
Sunday, August 7th, 2011An interest rate swap one of whose legs is linked to movements in a foreign exchange rate. Changes in the reference foreign exchange spot rate result in linear changes in the coupon rate paid/received under the swap. This swap allows borrowers, for example, to swap their debt into an interest rate that varies directly with [...]
Libor function swap
Saturday, August 6th, 2011An interest rate swap to whose floating-rate leg a customized mathematical function or equation has been applied to produce a payout profile tailored to a very specific view of rate movements
Inverse floater swap
Friday, August 5th, 2011An interest-rate swap under which one counterparty pays fixed and receives a floating rate indexed negatively to a reference index such as Libor. As Libor rises, the fixed payer would receive less; as it falls, he would receive more.
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