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Journal articles on the topic 'Swaps (Finance)'

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Published: 4 June 2021

Last updated: 1 August 2024

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1

Sivakumar, Sivaprakasam, and Anita Mathew. "Currency Swaps: An Instrument of International Finance." Vikalpa: The Journal for Decision Makers 21, no. 2 (April 1996): 3–14. http://dx.doi.org/10.1177/0256090919960201.

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A currency swap involves exchange of principal and interest payments in two different currencies between two parties. Swaps are off balance sheet transactions and have grown at a phenomenal rate. This article by Sivaprakasam Sivakumar and Anita Mathew focuses on the development of the swap market, presents an overview of currency swaps, and analyses the participants. It also discusses the basic types of swaps, assesses the risks and regulatory means of minimizing the risks, focuses on the practical applications, and evaluates the relevance of swaps to India.

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2

Merener, Nicolas. "Swap rate variance swaps." Quantitative Finance 12, no. 2 (February 2012): 249–61. http://dx.doi.org/10.1080/14697688.2010.497493.

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3

Davies, Dick, David Hillier, Andrew Marshall, and King Fui Cheah. "Pricing Interest Rate Swaps in Malaysia." Review of Pacific Basin Financial Markets and Policies 07, no. 04 (December 2004): 493–507. http://dx.doi.org/10.1142/s0219091504000251.

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This paper compares the theoretical price of interest rate swaps implied from the yield curve with the actual Kuala Lumpur Interbank Offer Rates used for swap resets in the Malaysian swap market for both semi-annual and annual interest rate swaps between 1996 and 2002. As far as we are aware no previous paper has considered pricing swaps in a less established derivative markets. Our empirical results indicate significant and persistent differences between the theoretical implied price and the actual reset price for both swaps over the sample period. This finding has implications for traders and banks in pricing swaps in Malaysia and more generally for pricing swaps in less established or illiquid markets or where capital controls have been introduced.

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4

Schoutens, Wim. "Moment swaps." Quantitative Finance 5, no. 6 (December 2005): 525–30. http://dx.doi.org/10.1080/14697680500401490.

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5

Visvanathan, Gnanakumar. "Who Uses Interest Rate Swaps? a Cross-Sectional Analysis." Journal of Accounting, Auditing & Finance 13, no. 3 (July 1998): 173–200. http://dx.doi.org/10.1177/0148558x9801300301.

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Empirical analysis in this study examines factors that explain the use of interest rate swaps by nonfinancial firms in the Standard & Poor's 500. Consistent with asymmetric information and agency cost theories, firms with significant expected financial distress costs use swaps to transform short-term debt into long-term fixed-rate debt. Debt maturity structure, but not interest rate sensitivity, is significant in the decision to use a swap. Credit quality differentials or expectations of improving financial prospects are not significant in distinguishing among swap users.

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Gil-Bazo, Javier. "The value of the ‘swap’ feature in equity default swaps." Quantitative Finance 6, no. 1 (February 2006): 67–74. http://dx.doi.org/10.1080/14697680500467822.

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7

Naumenkova, Svitlana, Volodymyr Mishchenko, Igor Chugunov, and Svitlana Mishchenko. "Debt-for-nature or climate swaps in public finance management." Problems and Perspectives in Management 21, no. 3 (September 21, 2023): 698–713. http://dx.doi.org/10.21511/ppm.21(3).2023.54.

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Considering climate change and growing ecological threats, achieving climate neutrality requires close attention from the state and the involvement of new tools, including those of the so-called green financing. This paper aims to determine the feasibility of combining the tasks of reducing the debt burden and expanding investments in environmental programs in Ukraine, using innovative tools for public finance management, such as debt-for-nature and debt-for-climate swaps. It substantiated the necessity of coordinating debt-for-environment investment programs within the framework of Ukraine’s National Recovery Plan and initiatives implemented in Ukraine with the active participation of the World Bank Group. The advantages of this approach are ensuring clear interaction with international financial institutions and expanding the practice of greening public management. Based on statistical data for 2009–2022, the results demonstrate the growth of negative debt dynamics and characterize limited financing environmental restoration in Ukraine. Relying on international practices, the study conducted a comparative analysis to identify the most significant characteristics of the new debt green conversion instruments as well as the advantages and limitations of their use in Ukraine. The paper offers scenarios for implementing the concept of debt-for-nature exchange in the conditions of Ukraine. It shows the result of the formation of a new debt payment profile. These findings can raise state authorities’ awareness of making proper decisions regarding debt policy and public finance management. AcknowledgmentThe study presents the results of a study conducted as part of the scientific project “Formation of the foundations of nationally rooted stability and security of the economic development of Ukraine in the conditions of the hybrid “peace-war” system” (state registration number 0123U100965).

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8

Smith, Donald J. "Valuing Interest Rate Swaps UsingOvernight Indexed Swap (OIS) Discounting." Journal of Derivatives 20, no. 4 (May 31, 2013): 49–59. http://dx.doi.org/10.3905/jod.2013.20.4.049.

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9

Berd, Arthur. "Recovery swaps." Journal of Credit Risk 1, no. 3 (2005): 61–70. http://dx.doi.org/10.21314/jcr.2005.020.

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10

Bierman, Harold. "Accounting for Interest Rate Swaps." Journal of Accounting, Auditing & Finance 2, no. 4 (October 1987): 396–408. http://dx.doi.org/10.1177/0148558x8700200407.

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There are major accounting issues for both the counterparties and the principal of an interest rate swap transaction. Currently, the market for swaps well exceeds $150 billion, and at this writing there are no explicit accounting standards for such transactions. This paper defines the basic swap transaction and the relevant accounting issues and offers possible solutions. Notes to the financial statements are needed to reveal the changes in risk, both to the counterparties and to the principal.

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11

Oldani, Chiara, and Giulia Fantini. "The use of swaps by local administrations: the case of Italian regions, 2007–2014." Journal of Public Budgeting, Accounting & Financial Management 32, no. 4 (September 10, 2020): 713–27. http://dx.doi.org/10.1108/jpbafm-12-2019-0184.

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PurposeThis study contributes to the literature on local administrations' debt and attempts to answer the following research questions: (1) What effects do swaps produce on regions' debt? (2) Have swaps been used to finance discretionary debt?Design/methodology/approachThe paper investigates the debt burden as influenced by economic, financial and political variables and forces with panel data techniques, and tests whether swaps have been used to financing debt due to unfunded expenditures.FindingsPanel data results of 15 Italian regions over the 2007–2014 period shows that regions with higher debt exhibited a higher interest rate exposure and have employed derivatives hoping to counterbalance the reduced resources received from the central state, in line with other European countries' experience (i.e. France and Greece).Research limitations/implicationsThe scarcity of official data and information on swaps has limited the empirical investigations in the literature but did not reduce the losses of local administrations.Originality/valueThis study creates the first database on swaps purchased by Italian regions to investigate their impact on their debt. Results show that highly indebted regions with reduced funds from the central state and diminished local resources are more likely to use swaps to fund their debt. Italian regions heavily depended on long-term debt to finance their non-healthcare services, rather than current revenues; swaps have been used to finance discretionary (non-healthcare) debt.

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12

J Jermann, Urban. "Negative Swap Spreads and Limited Arbitrage." Review of Financial Studies 33, no. 1 (March 13, 2019): 212–38. http://dx.doi.org/10.1093/rfs/hhz030.

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Abstract Since October 2008, fixed rates for interest rate swaps with a 30-year maturity have been mostly below Treasury rates with the same maturity. Under standard assumptions, this implies the existence of arbitrage opportunities. This paper presents a model for pricing interest rate swaps, where frictions for holding bonds limit arbitrage. I analytically show that negative swap spreads should not be surprising. In the calibrated model, swap spreads can reasonably match empirical counterparts without the need for large demand imbalances in the swap market. Empirical evidence is consistent with the relation between term spreads and swap spreads in the model. Received April 16, 2017; editorial decision Januray 3, 2019 by Editor Stijn Van Nieuwerburgh.

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Franco, Sebastian, and Anatoliy Swishchuk. "Pricing of Pseudo-Swaps Based on Pseudo-Statistics." Risks 11, no. 8 (August 3, 2023): 141. http://dx.doi.org/10.3390/risks11080141.

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The main problem in pricing variance, volatility, and correlation swaps is how to determine the evolution of the stochastic processes for the underlying assets and their volatilities. Thus, sometimes it is simpler to consider pricing of swaps by so-called pseudo-statistics, namely, the pseudo-variance, -covariance, -volatility, and -correlation. The main motivation of this paper is to consider the pricing of swaps based on pseudo-statistics, instead of stochastic models, and to compare this approach with the most popular stochastic volatility model in the Cox–Ingresoll–Ross (CIR) model. Within this paper, we will demonstrate how to value different types of swaps (variance, volatility, covariance, and correlation swaps) using pseudo-statistics (pseudo-variance, pseudo-volatility, pseudo-correlation, and pseudo-covariance). As a result, we will arrive at a method for pricing swaps that does not rely on any stochastic models for a stochastic stock price or stochastic volatility, and instead relies on data/statistics. A data/statistics-based approach to swap pricing is very different from stochastic volatility models such as the Cox–Ingresoll–Ross (CIR) model, which, in comparison, follows a stochastic differential equation. Although there are many other stochastic models that provide an approach to calculating the price of swaps, we will use the CIR model for comparison within this paper, due to the popularity of the CIR model. Therefore, in this paper, we will compare the CIR model approach to pricing swaps to the pseudo-statistic approach to pricing swaps, in order to compare a stochastic model to the data/statistics-based approach to swap pricing that is developed within this paper.

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Javaheri, Alireza, Paul Wilmott, and Espen Haug. "GARCH and Volatility swaps." Quantitative Finance 4, no. 5 (October 2004): 589–95. http://dx.doi.org/10.1080/14697680400000040.

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15

DAVIS, MARK H. A., and VICENTE MATAIX-PASTOR. "ARBITRAGE-FREE INTERPOLATION OF THE SWAP CURVE." International Journal of Theoretical and Applied Finance 12, no. 07 (November 2009): 969–1005. http://dx.doi.org/10.1142/s0219024909005543.

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We suggest an arbitrage free interpolation method for pricing zero-coupon bonds of arbitrary maturities from a model of the market data that typically underlies the swap curve; that is short term, future and swap rates. This is done first within the context of the Libor or the swap market model. We do so by introducing an independent stochastic process which plays the role of a short term yield, in which case we obtain an approximate closed-form solution to the term structure while preserving a stochastic implied short rate. This will be discontinuous but it can be turned into a continuous process (however at the expense of closed-form solutions to bond prices). We then relax the assumption of a complete set of initial swap rates and look at the more realistic case where the initial data consists of fewer swap rates than tenor dates and show that a particular interpolation of the missing swaps in the tenor structure will determine the volatility of the resulting interpolated swaps. We give conditions under which the problem can be solved in closed-form therefore providing a consistent arbitrage-free method for yield curve generation.

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16

Wei, Jason Z. "Valuing Differential Swaps." Journal of Derivatives 1, no. 3 (February 28, 1994): 64–76. http://dx.doi.org/10.3905/jod.1994.407889.

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17

Klein, Peter. "Interest Rate Swaps." Journal of Derivatives 12, no. 1 (August 31, 2004): 46–57. http://dx.doi.org/10.3905/jod.2004.434536.

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18

Meng, Lei, and Owain AP Gwilym. "Credit Default Swaps." Journal of Fixed Income 14, no. 4 (March 31, 2005): 17–28. http://dx.doi.org/10.3905/jfi.2005.491109.

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19

BODIE, ZVI, and ROBERT C. MERTON. "International pension swaps." Journal of Pension Economics and Finance 1, no. 1 (March 2002): 77–83. http://dx.doi.org/10.1017/s1474747201001032.

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During the past twenty years, swap contracts have become key financial ‘adapters’ linking diverse national financial systems to the global financial network. Today banks and investment companies around the world use swaps extensively to manage their currency, interest-rate, and equity-market risks and to lower their transaction costs. Yet pension funds, which have grown rapidly over that same 20-year period, hardly use swaps at all. This paper suggests how pension funds could use swaps to achieve the risk-sharing benefits of broad international diversification and hedging while avoiding the ‘flight’ of scarce domestic capital to other countries. The paper also shows how swaps can be used to lower the risks of expropriation and to lower the other transaction costs of investing in other countries.

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20

HE, XIN-JIANG, and SONG-PING ZHU. "VARIANCE AND VOLATILITY SWAPS UNDER A TWO-FACTOR STOCHASTIC VOLATILITY MODEL WITH REGIME SWITCHING." International Journal of Theoretical and Applied Finance 22, no. 04 (June 2019): 1950009. http://dx.doi.org/10.1142/s0219024919500092.

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In this paper, the pricing problem of variance and volatility swaps is discussed under a two-factor stochastic volatility model. This model can be treated as a two-factor Heston model with one factor following the CIR process and another characterized by a Markov chain, with the motivation originating from the popularity of the Heston model and the strong evidence of the existence of regime switching in real markets. Based on the derived forward characteristic function of the underlying price, analytical pricing formulae for variance and volatility swaps are presented, and numerical experiments are also conducted to compare swap prices calculated through our formulae and those obtained under the Heston model to show whether the introduction of the regime switching factor would lead to any significant difference.

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21

Wall, Larry D., John F. Marshall, and Kenneth R. Kapner. "The Swaps Market." Journal of Finance 48, no. 5 (December 1993): 2038. http://dx.doi.org/10.2307/2329083.

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22

Doffou, Ako. "Testing derivatives pricing models under higher-order moment swaps." Studies in Economics and Finance 36, no. 2 (June 24, 2019): 154–67. http://dx.doi.org/10.1108/sef-04-2018-0106.

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Purpose This paper aims to test three parametric models in pricing and hedging higher-order moment swaps. Using vanilla option prices from the volatility surface of the Euro Stoxx 50 Index, the paper shows that the pricing accuracy of these models is very satisfactory under four different pricing error functions. The result is that taking a position in a third moment swap considerably improves the performance of the standard hedge of a variance swap based on a static position in the log-contract and a dynamic trading strategy. The position in the third moment swap is taken by running a Monte Carlo simulation. Design/methodology/approach This paper undertook empirical tests of three parametric models. The aim of the paper is twofold: assess the pricing accuracy of these models and show how the classical hedge of the variance swap in terms of a position in a log-contract and a dynamic trading strategy can be significantly enhanced by using third-order moment swaps. The pricing accuracy was measured under four different pricing error functions. A Monte Carlo simulation was run to take a position in the third moment swap. Findings The results of the paper are twofold: the pricing accuracy of the Heston (1993) model and that of two Levy models with stochastic time and stochastic volatility are satisfactory; taking a position in third-order moment swaps can significantly improve the performance of the standard hedge of a variance swap. Research limitations/implications The limitation is that these empirical tests are conducted on existing three parametric models. Maybe more critical insights could have been revealed had these tests been conducted in a brand new derivatives pricing model. Originality/value This work is 100 per cent original, and it undertook empirical tests of the pricing and hedging accuracy of existing three parametric models.

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23

BRIGO, DAMIANO, NICOLA PEDE, and ANDREA PETRELLI. "MULTI-CURRENCY CREDIT DEFAULT SWAPS." International Journal of Theoretical and Applied Finance 22, no. 04 (June 2019): 1950018. http://dx.doi.org/10.1142/s0219024919500183.

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Credit default swaps (CDS) on a reference entity may be traded in multiple currencies, in that, protection upon default may be offered either in the currency where the entity resides, or in a more liquid and global foreign currency. In this situation, currency fluctuations clearly introduce a source of risk on CDS spreads. For emerging markets, but in some cases even in well-developed markets, the risk of dramatic foreign exchange (FX)-rate devaluation in conjunction with default events is relevant. We address this issue by proposing and implementing a model that considers the risk of foreign currency devaluation that is synchronous with default of the reference entity. As a fundamental case, we consider the sovereign CDSs on Italy, quoted both in EUR and USD. Preliminary results indicate that perceived risks of devaluation can induce a significant basis across domestic and foreign CDS quotes. For the Republic of Italy, a USD CDS spread quote of 440 bps can translate into an EUR quote of 350[Formula: see text]bps in the middle of the Euro-debt crisis in the first week of May 2012. More recently, from June 2013, the basis spreads between the EUR quotes and the USD quotes are in the range around 40[Formula: see text]bps. We explain in detail the sources for such discrepancies. Our modeling approach is based on the reduced form framework for credit risk, where the default time is modeled in a Cox process setting with explicit diffusion dynamics for default intensity/hazard rate and exponential jump to default. For the FX part, we include an explicit default-driven jump in the FX dynamics. As our results show, such a mechanism provides a further and more effective way to model credit/FX dependency than the instantaneous correlation that can be imposed among the driving Brownian motions of default intensity and FX rates, as it is not possible to explain the observed basis spreads during the Euro-debt crisis by using the latter mechanism alone.

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Araújo, Leandro Vieira Lima, and Fábio Henrique Bittes Terra. "A dinâmica da taxa de câmbio face às operações swap no Brasil (2002-2015): uma interpretação pós-keynesiana." Nova Economia 28, no. 3 (December 2018): 745–77. http://dx.doi.org/10.1590/0103-6351/3615.

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Resumo Investiga-se, à luz da teoria pós-keynesiana, o comportamento da taxa de câmbio no Brasil face as intervenções com swaps cambiais do Banco Central de 2002 a 2015. Analisam-se as propriedades de uma economia aberta, as condicionantes da taxa de câmbio, o mercado cambial e a inserção do Brasil no sistema monetário internacional. Afere-se empiricamente o comportamento cambial frente às operações swap por meio de modelos ARCH/GARCH e VAR. Com os primeiros, observa-se a volatilidade das taxas de câmbio nominal e real efetiva, cujos resultados apontam presença de volatilidade no período. Em seguida, realizam-se estimações VAR, para estudar a variância das taxas de câmbio ante os swaps e variáveis relevantes ao comportamento cambial, concluindo-se que os swaps são respostas ao comportamento da taxa de câmbio nominal, embora seus efeitos são mais visíveis sobre a taxa de câmbio real efetiva.

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Bakoush, Mohamed, Enrico H. Gerding, and Simon Wolfe. "Interest rate swaps clearing and systemic risk." Finance Research Letters 33 (March 2020): 101218. http://dx.doi.org/10.1016/j.frl.2019.06.016.

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26

Swishchuk, Anatoliy, and Sebastian Franco. "Pricing of Averaged Variance, Volatility, Covariance and Correlation Swaps with Semi-Markov Volatilities." Risks 11, no. 9 (September 8, 2023): 162. http://dx.doi.org/10.3390/risks11090162.

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In this paper, we consider the problem of pricing variance, volatility, covariance and correlation swaps for financial markets with semi-Markov volatilities. The paper’s motivation derives from the fact that in many financial markets, the inter-arrival times between book events are not independent or exponentially distributed but instead have an arbitrary distribution, which means they can be accurately modelled using a semi-Markov process. Through the results of the paper, we hope to answer the following question: Is it possible to calculate averaged swap prices for financial markets with semi-Markov volatilities? This question has not been considered in the existing literature, which makes the paper’s results novel and significant, especially when one considers the increasing popularity of derivative securities such as swaps, futures and options written on the volatility index VIX. Within this paper, we model financial markets featuring semi-Markov volatilities and price-averaged variance, volatility, covariance and correlation swaps for these markets. Formulas used for the numerical evaluation of averaged variance, volatility, covariance and correlation swaps with semi-Markov volatilities are presented as well. The formulas that are detailed within the paper are innovative because they provide a new, simplified method to price averaged swaps, which has not been presented in the existing literature. A numerical example involving the pricing of averaged variance, volatility, covariance and correlation swaps in a market with a two-state semi-Markov process is presented, providing a detailed overview of how the model developed in the paper can be used with real-life data. The novelty of the paper lies in the closed-form formulas provided for the pricing of variance, volatility, covariance and correlation swaps with semi-Markov volatilities, as they can be directly applied by derivative practitioners and others in the financial industry to price variance, volatility, covariance and correlation swaps.

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Baker, Lee, Richard Haynes, John Roberts, Rajiv Sharma, and Bruce Tuckman. "Risk Transfer with Interest Rate Swaps." Financial Markets, Institutions & Instruments 30, no. 1 (December 21, 2020): 3–28. http://dx.doi.org/10.1111/fmii.12135.

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28

Gu, Jia-Wen, Wai-Ki Ching, Tak-Kuen Siu, and Harry Zheng. "On pricing basket credit default swaps." Quantitative Finance 13, no. 12 (December 2013): 1845–54. http://dx.doi.org/10.1080/14697688.2013.783713.

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29

Li, Haitao. "Pricing of swaps with default risk." Review of Derivatives Research 2, no. 2-3 (December 1998): 231–50. http://dx.doi.org/10.1007/bf01531336.

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30

Houweling, Patrick, and Ton Vorst. "Pricing default swaps: Empirical evidence." Journal of International Money and Finance 24, no. 8 (December 2005): 1200–1225. http://dx.doi.org/10.1016/j.jimonfin.2005.08.009.

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31

Hinnerich, Mia. "Inflation-indexed swaps and swaptions." Journal of Banking & Finance 32, no. 11 (November 2008): 2293–306. http://dx.doi.org/10.1016/j.jbankfin.2007.04.033.

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32

Chance, Don M. "Equity Swaps and Equity Investing." Journal of Alternative Investments 7, no. 1 (June 30, 2004): 75–97. http://dx.doi.org/10.3905/jai.2004.419606.

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Bhattacharya, Anand K. "Synthetic asset swaps." Journal of Portfolio Management 17, no. 1 (October 31, 1990): 56–64. http://dx.doi.org/10.3905/jpm.1990.409303.

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Jamshidian, Farshid. "Hedging quantos, differential swaps and ratios." Applied Mathematical Finance 1, no. 1 (September 1994): 1–20. http://dx.doi.org/10.1080/13504869400000001.

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Bejol, Philipp, and Nicola Livingstone. "Revisiting currency swaps: hedging real estate investments in global city markets." Journal of Property Investment & Finance 36, no. 2 (March 5, 2018): 191–209. http://dx.doi.org/10.1108/jpif-04-2017-0026.

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Purpose The purpose of this paper is to re-examine currency swaps as an effective hedging technique for individual asset performance in today’s global real estate market, by considering hypothetical prime office investments across six different cities and five currency pairs. The perspective of a risk-averse, high net worth, non-institutional, smaller-scale Swiss investor is paired with investors from five additional national markets. Design/methodology/approach The study examines currency swaps in key office markets across three continents (Frankfurt, London, New York, Sydney, Warsaw and Zurich) and extends previous work on the topic by adopting both Monte Carlo (MC) and Latin Hypercube (LH) techniques to create stochastic samples for individual asset performance analyses. This is the first paper to apply LH sampling to currency swaps with underlying real estate assets, and the validity of this method is compared with that of MC. Four models are presented: the experience of the domestic investor (no exchange rate (ER) fluctuations); an unhedged direct foreign investment; hedging rental income and initial purchase price via a currency swap; and hedging rental income and anticipated terminal value. Findings The efficacy of a swap depends on the historical framework of the ERs. If the foreign currency depreciates against the domestic one, hedging the repatriated cash flow of a property investment proved superior to the unhedged strategy (EUR, GBP, PLN and USD to the CHF). An investor would benefit from exposure to an appreciating foreign currency (CHF to the EUR, GBP, PLN and USD), with an unhedged strategy clearly outperforming the currency swap as well as the domestic investor’s performance, while a historically sideways fluctuating ER (AUD to the CHF) also favours an unhedged approach. In all scenarios, unexpected economic or market shocks could cause negative consequences on the repatriated proceeds. Practical implications This research is of interest to small-scale, non-institutional investors aiming to develop strategies for currency risk mitigation in international investments for individual assets; however, tax-optimising strategies and the implications on a larger portfolio have not been taken into account. Originality/value There is no recent academic work on the efficacy of currency swaps in today’s global office market, nor has the position of smaller-scale high net worth investors received much academic attention. This research revisits the discussion on their validity, providing contemporary insight into the performance of six markets using LH as an alternative and original sampling technique.

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Zou, Xiaopeng, Zihan Ye, and Qiuzi Zhang. "Securitization of longevity risk – survivor swap perspective." China Finance Review International 6, no. 4 (November 21, 2016): 322–41. http://dx.doi.org/10.1108/cfri-06-2015-0092.

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Purpose The purpose of this paper is to present a clear path to securitize the longevity risk with two distinct swaps in order to inspire a new Chinese life market. Design/methodology/approach Studies on longevity risk securitization consist of three aspects, respectively, instrument design, pricing methodology and mortality projection. The swaps designed are referenced, respectively, to vanilla and complex survivor swaps (Dowd et al., 2006; Lin and Cox, 2005). Methods applied are RHH model and Gompertz law for mortality projection, as well as two-factor Wang transformation for pricing. Findings This paper figures out the market price of risk in Chinese annuity market, checks for the sensitivity of the price to parameters and tests the hedging effects by Monte Carlo simulation. Originality/value Based on the theoretical and numerical results, this paper suggests an effective way to possibly witness the birth of New Life Market in China.

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37

Turnbull, Stuart M. "Swaps: A Zero Sum Game?" Financial Management 16, no. 1 (1987): 15. http://dx.doi.org/10.2307/3665544.

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38

YANG, BEN-ZHANG, JIA YUE, and NAN-JING HUANG. "EQUILIBRIUM PRICE OF VARIANCE SWAPS UNDER STOCHASTIC VOLATILITY WITH LÉVY JUMPS AND STOCHASTIC INTEREST RATE." International Journal of Theoretical and Applied Finance 22, no. 04 (June 2019): 1950016. http://dx.doi.org/10.1142/s021902491950016x.

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This paper focuses on the pricing of variance swaps in incomplete markets where the short rate of interest is determined by a Cox–Ingersoll–Ross model and the stock price is determined by a Heston model with simultaneous Lévy jumps. We obtain the pricing kernel and the equivalent martingale measure in an equilibrium framework. We also give new closed-form solutions for the delivery prices of discretely sampled variance swaps under the forward measure, as opposed to the risk neural measure, by employing the joint moment generating function of underlying processes. Theoretical results and numerical examples are provided to illustrate how the values of variance swaps depend on the jump risks and stochastic interest rate.

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ITKIN, A., V. SHCHERBAKOV, and A. VEYGMAN. "NEW MODEL FOR PRICING QUANTO CREDIT DEFAULT SWAPS." International Journal of Theoretical and Applied Finance 22, no. 03 (May 2019): 1950003. http://dx.doi.org/10.1142/s0219024919500031.

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We propose a new model for pricing quanto credit default swaps (CDS) and risky bonds. The model operates with four stochastic factors, namely: the hazard rate, the foreign exchange rate, the domestic interest rate, and the foreign interest rate, and allows for jumps-at-default in both the foreign exchange rate and the foreign interest rate. Corresponding systems of partial differential equations are derived similar to how this is done by Bielecki et al. [PDE approach to valuation and hedging of credit derivatives, Quantitative Finance 5 (3), 257–270]. A localized version of the Radial Basis Function partition of unity method is used to solve these four-dimensional equations. The results of our numerical experiments qualitatively explain the discrepancies observed in the marked values of CDS spreads traded in domestic and foreign economies.

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40

Chance, Don M., and Don R. Rich. "Asset Swaps with Asian-Style Payoffs." Journal of Derivatives 3, no. 4 (May 31, 1996): 64–77. http://dx.doi.org/10.3905/jod.1996.407951.

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41

Chang, Chuang-Chang, and San-Lin Chung. "Pricing Asian-Style Interest Rate Swaps." Journal of Derivatives 9, no. 4 (May 31, 2002): 45–55. http://dx.doi.org/10.3905/jod.2002.319185.

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42

Nieto, Belén, Alfonso Novales, and Gonzalo Rubio. "Variance swaps and intertemporal asset pricing." Spanish Review of Financial Economics 9, no. 1 (January 2011): 20–30. http://dx.doi.org/10.1016/j.srfe.2011.01.001.

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43

Osano, Hiroshi. "Credit default swaps and market information." Journal of Financial Markets 48 (March 2020): 100498. http://dx.doi.org/10.1016/j.finmar.2019.06.001.

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44

Jarrow, Robert A. "The Economics of Credit Default Swaps." Annual Review of Financial Economics 3, no. 1 (December 2011): 235–57. http://dx.doi.org/10.1146/annurev-financial-102710-144918.

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45

Belton, Terrence M., and Pavan Wadhwa. "Swaps as a Synthetic Asset Class." Journal of Fixed Income 12, no. 3 (December 31, 2002): 32–39. http://dx.doi.org/10.3905/jfi.2002.319330.

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46

Maegebier, Alexander Hendrik. "Securitization of disability risk via bonds and swaps." Journal of Risk Finance 16, no. 4 (August 17, 2015): 407–24. http://dx.doi.org/10.1108/jrf-11-2014-0166.

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Purpose – Two strands of the literature are combined, namely the modeling of disability insurance and the design, valuation and discussion of insurance-linked securities. Design/methodology/approach – This paper provides a discussion regarding the advantages and detriments of disability-linked securities in comparison with mortality-linked bonds and swaps as well as regarding potential disability-linked indices and the potential use. The discussion is followed by an introduction of a potential design and a corresponding valuation of disability bonds and swaps. Findings – This securitization will provide useful tools for the risk management of disability risk in a risk-based regulatory framework. Originality/value – No disability-linked securities have been defined and discussed so far.

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47

Bernard, Carole, and Zhenyu Cui. "Prices and Asymptotics for Discrete Variance Swaps." Applied Mathematical Finance 21, no. 2 (August 2013): 140–73. http://dx.doi.org/10.1080/1350486x.2013.820524.

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48

Arak, Marcelle, Laurie S. Goodman, and Joseph Snailer. "Duration equivalent bond swaps." Journal of Portfolio Management 12, no. 4 (July 31, 1986): 26–32. http://dx.doi.org/10.3905/jpm.1986.409067.

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49

Goodman, Laurie S., and Frank J. Fabozzi. "CMBS Total Return Swaps." Journal of Portfolio Management 31, no. 5 (September 30, 2005): 162–67. http://dx.doi.org/10.3905/jpm.2005.593899.

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50

JACKSON, KEN, ALEX KREININ, and WANHE ZHANG. "FAST VALUATION OF FORWARD-STARTING BASKET DEFAULT SWAPS." International Journal of Theoretical and Applied Finance 13, no. 02 (March 2010): 195–209. http://dx.doi.org/10.1142/s0219024910005735.

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A basket default swap (BDS) is a credit derivative with contingent payments that are triggered by a combination of default events of the reference entities. A forward-starting basket default swap (FBDS) is a BDS starting at a specified future time. Existing analytic or semi-analytic methods for pricing FBDS are time consuming due to the large number of possible default combinations before the BDS starts. This paper develops a fast approximation method for FBDS based on the conditional independence framework. The method converts the pricing of a FBDS to an equivalent BDS pricing problem and combines Monte Carlo simulation with an analytic approach to achieve an effective method. This hybrid method is a novel technique which can be viewed either as a means to accelerate the convergence of Monte Carlo simulation or as a way to estimate parameters in an analytic method that are difficult to compute directly. Numerical results demonstrate the accuracy and efficiency of the proposed hybrid method.

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