Par-Par Asset Swap Spreads: An Illustration of How to Price Asset Swaps
10 Pages Posted: 14 Jul 2016 Last revised: 4 Dec 2016
Date Written: December 3, 2016
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: Suggested Citation