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#asset-swap #finance #gale-using-and-tradning-asset-swaps
The spread is calculated such that the present value of the swap equals the difference between par and the price of the bond in the market. The dealer is thus compensated for selling the bond at a discount or premium to its market value.
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owner: piotr.wasik - Using and Trading Asset Swaps - Giles Gale (Morgan Stanley), p5

then pa ys fixed on a swap to the maturity of the bond at a rate equal to the coupon of the bond, and receives the Li bor rate less (in the case of most governments) a spread. All fixed cash flows are timed to coincide and net off. <span>The spread is calculated such t hat the pres ent value of the swap equals the difference bet ween par and the price of the bond in the market. The dealer is thus compensate d for selling the bond at a discount or premium to its market value. Example of a Par/Par Asset S wap The basic scheme of a par/par ASW is sho wn in Exhibit 2 for the 4% Feb ’15 Treasur y. 1 There is a



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