Talk:Interest rate swap

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    Once a component of the floating leg is fixed (or "reset"), the fixed and floating components can be swapped or settlement (typically one or two days after the fixing date).

    "... swapped or settled" seems a more grammatical way of stating the alternatives that "can be" done. I think the writer wanted to be sure he could link to "settlement," but the article there is just a stub anyway and the part devoted to the financial use of the term "settlement" is just one third of that stub, and there's a link to it in the previous paragraph anyway! It isn't worth this sore thumb of a sentence.

    Contents

    [edit] Most swaps are interest rates swaps per ISDA

    The ISDA semi annual survery shows that the plain vanilla interest rate swap exceeds other derivatives by far. Why does this article say that most swaps have a fixed equity leg?

    The only possible reason is that there is option pricing model shown as a reference and they work best with equities. But the fact is that equity derivatives lag far behind interest rate swaps in volume.

    Probably because of the narrow perspective of the writer. I know in the past I have written things from a pure IR derivatives point of view and then realised (or been told) later what a narrow view I espoused. Feel free to change things so that they are right. Pcb21| Pete 11:42, 11 Dec 2004 (UTC)

    [edit] Move

    I moved some things between this and swap (finance).--Jerryseinfeld 21:45, 31 Dec 2004 (UTC)

    [edit] Image

    Please, save that image with a lossless compression, it hurts my eyes to see that thing.--Jerryseinfeld 00:51, 1 Jan 2005 (UTC)

    [edit] Trading

    My impression is that IR swaps are very liquid and traded frequently. Can someone clarify the statement that they are not widely traded because they are not "standardized." This seems wrong to me as they can be easily traded after inception (i.e. just pay or recive the NPV - depending on whether it is positive or negative). --Krexwall 17:22, 1 Jan 2005 (UTC)

    It should probably just say that their market is called OTC because they don't have the properties to be traded like exchange traded derivatives. The 10 banks that oeprate this so called OTC market for 95% of derivatives have probably made it just as liquid as the futures and options market. I don't work at the JPM derivatives colossus so I don't know how the trading works.--Jerryseinfeld 18:59, 1 Jan 2005 (UTC)

    [edit] Removed Tax Purposes Section

    Another common use of the swap was to avoid the British stamp tax on short sales. Unlike the SEC in the US, in the UK only the short sells are taxed, and in order to raise enough money to pay for the exchange, taxed at a fairly high rate. To avoid this tax it is possible to simply swap out a position, paying a small fee to the other counterparty instead of a larger fee to the British exchanges.

    This whole section is inaccurate. Firstly, the UK stamp duty applies on equity purchases, not sales. Thus, in a short sale it applies on the close-out of the position. The money raised is not used to "pay for the exchange", it's levied by the UK government under the Finance Act 1986 (see the entry on Stamp Duty for more). Finally, the instrument used to avoid paying Stamp Duty on purchases is an Equity swap or Total return swap. I added these two items to the See Also section..--Andrew G Ross 23:33, 23 Apr 2005 (UTC)

    [edit] Valuation and Pricing

    Some of the text here was a mess, especially this:

    At the time the swap is entered into, the actual payment rates are known only in the future (of course), but the market provides a yield curve from bonds with various maturity dates stretching from the short term to the long term.

    I have tried to clean it up to make it clear that the fixed payments are known but the floating payment are unknown, but can be estimated from the yield curve.--KeithWright