Chapter 7
Intra-Currency Basis Swaps
Definition
An intra-currency basis swap (ICBS) is a derivative security in which each of two parties agrees to pay the other a different floating rate, with both rates denominated in the same currency. For example, one party might agree to pay six-month (6M) LIBOR to the other party in exchange for being paid 3M LIBOR less a spread.
Were we to apply this definition strictly, we’d also characterize as ICBS an agreement to exchange 3M LIBOR for the 3M OIS rate in the same currency. However, we won’t treat such swaps in this chapter, as they can be constructed synthetically by combining swaps discussed here and in other chapters in this book.
Factors that Determine Pricing
In Chapter 6, we discussed a few of ...
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