Par-Par Asset Swap Spreads: An Illustration of How to Price Asset Swaps

10 Pages Posted: 14 Jul 2016 Last revised: 4 Dec 2016

See all articles by Nicholas Burgess

Nicholas Burgess

University of Oxford, Said Business School, Students

Date Written: December 3, 2016

Abstract

Asset swaps provide a form of asset financing, where investors borrow funds to purchase an asset, typically a bond. Asset swaps are also a good bond rich-cheap analysis tool. Such swaps can of course be used for speculative purposes. In this paper we provide a brief overview of asset swaps and derive a par-par asset swap spread formula incorporating bond accrued interest. Finally we illustrate how to calculate both the yield-yield and par-par asset swap spread using the liquid 10 year German Bund.

Keywords: Asset Swap, Credit Risk, Asset Swap Spread, Yield-Yield Method, Par-Par Method, Par Adjustments, Accrued Interest, Dirty Price, Clean Price

JEL Classification: C00, C02, D46, E40, E44, E50, F00, F30, G10, G12

Suggested Citation

Burgess, Nicholas, Par-Par Asset Swap Spreads: An Illustration of How to Price Asset Swaps (December 3, 2016). Available at SSRN: https://ssrn.com/abstract=2809111 or http://dx.doi.org/10.2139/ssrn.2809111

Nicholas Burgess (Contact Author)

University of Oxford, Said Business School, Students ( email )

Oxford, OX1 5NY
United Kingdom

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