Swaps index

The first step in this analysis results from simply swapping index i with / and index a with b. Similarly, one may show equivalence of terms four and five, six and nine, and seven and eight (with appropriate sign changes). The final, simplified expression is thus... 

Deacon, M., Derry, A., 2004. Inflation-Indexed Securities Bonds, Swaps and Other Derivates, 2nd ed. lohn Wiley Sons, Chichester. 

As introduced, the reference rate represents the interest rate or index used to obtain the linkage. In the European market, the major parts of floating-rate note issuances are linked to the Euribor and the remaining to the constant maturity swap. In the US and UK markets, they are tied to the Libor and short-term treasury bonds. 

There is a wide range of uses to which repo might be put. Structured transactions that are very similar to repo include total return swaps, and other structured repo trades include floating-rate repo that contains an option to switch to a fixed rate at a later date. In the equity market repo is often conducted in a basket of stocks, which might be constituent stocks in an index such as the FTSEIOO or CAC40 or user-specified bas-... 

Here, i is the market observation index with time to maturity of tj, and R t) represents the interest rate corresponding to maturity t, where < t < j. The formula can be used to derive any swap rate between two market observations R(fi) and i). 

An investor should be able to replicate the index and its performance with a small number of instruments as well as with relatively low transaction costs and without moving the market too much. For this reason the index constituents should be a set of bonds that have standard features, are liquid, and trade actively in the secondary market. The ability to invest in the index through derivative instruments such as futures and total return swaps is an added attraction of an index. 

A differential swap is a basis swap in which one of the legs is calculated in a diflFerent currency. Typically, this leg is linked to a reference index rate for another currency but is denominated in the domestic currency. For example, one party might pay 6-month sterling LIBOR, in sterling, on a notional principal of 10 million and receive euro-LIBOR minus a margin, in sterling, on the same notional principal. Differential swaps are not very common and are the most difficult for a bank to hedge. 

Options were originally written on commodities such as wheat and sugar. Today investors can buy or sell options on a wide range of underlying instruments in addition to commodities, including financial products such as foreign exchange rates, bonds, equities, and derivatives such as futures, swaps, and equity indexes. Contracts on commodities are known as options on physicals those on financial assets are known diS financial options. 

To gain exposure to sectors where, for various reasons, they do not wish to make actual purchases, investors can use a variation on a TR swap called an index swap, in which one of the counterparties pays a total return tied to an external reference index and the other pays a LIBOR-linked coupon or the total return of another index. Indexes used include those for government bonds, high-yield bonds, and technology stocks. Investors who believe that the bank loan market will outperform the mortgt e-backed bond sector, for instance, might enter into an index swap in which they pay the total return of the mortgage index and receive the total return of the bank-loan index. 

Hybrid securities. Bonds that are made up of a combination of one or more securities, or which link their performance to the performance of another bond or asset, or an index Structured notes. Bonds that combine a bond with a derivative such as an interest rate swap, or bonds that are created from securitization transactions (see chapter 14)... 

In the BzzMath library, the AutoSwap function applied to a BzzVectorInt dimensioned n and containing all the numbers from 1 to n in an assigned order allows the ordering index to be swapped. 

Inflation-Linked Bond Swap, This is also known as a synthetic index-linked bond. It is a swap with the following two cash flow legs ... 

With these swaps, IL leg is usually set at a fioor of 0 percent for the annual change in the underlying index. This guarantees the investor a minimum return of the fixed-rate coupon. 

Using equation 14.16, we can build a forward inflation curve provided we have the values of the index at present, as well as a set of zero-coupon bond prices of required credit quality. Following standard yield curve analysis, we may build the term structure from forward rates and therefore imply the real yield curve, or alternatively we may construct the real curve and project the forward rates. However, if we are using inflation swaps for the market price inputs, the former method is preferred because IL swaps are usually quoted in terms of a forward index value. 

Another potential instrument available for risk management by metal market participants (among others) is some form of commodity index. The MG Base Metal Index (MGMI), a consumption-weighted price index based on the six LME traded metals, was introduced in early 1989 but lasted only until 1S>91." It was intended to provide a hedging facility for exposure in the commodity swaps market. However, partly due to design problems, it failed... 

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