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Debt Markets and Analysis, + Website by R. Stafford Johnson

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CHAPTER 14

Interest Rate and Credit Default Swaps

Introduction

A swap, by definition, is a legal arrangement between two parties to exchange specific payments. There are four types of financial swaps:

1. Interest rate swaps: The exchange of fixed-rate payments for floating-rate payments.
2. Currency swaps: The exchange of liabilities in different currencies.
3. Cross-currency swaps: The combination of an interest rate and currency swap.
4. Credit default swaps: Exchange of premium payments for default protection.

In this chapter, we examine the features, markets, and uses of standard interest rate swaps, two interest rate swap derivatives, and the markets, uses and pricing of credit default swaps.

Generic Interest Rate Swaps

Features

The simplest ...

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