Interest-Rate Swaps and Arbitrage

Jiøí Málek

Czech Journal of Economics and Finance (Finance a uver), 2001, vol. 51, issue 2, 99-110

Abstract: Three approaches toward the determination of fixed swap rates are presented in this article: a swap as a portfolio of bonds with a fixed and floating coupon, a swap as a portfolio of forwards, and a swap as the difference between the cap and the floor (zero-collar). Later in the paper, credit risk is taken in consideration. The credit risk of interest-rate swaps is much lower than that of loans or corporate bonds. Empirical research is presented to support the analysis. One of the most important determinants of credit risk in a swap spread is the yield curve slope.

Keywords: interest-rate swap; bonds; credit risk (search for similar items in EconPapers)
JEL-codes: G13 G39 (search for similar items in EconPapers)
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:51:y:2001:i:2:p:99-110

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