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#asset-swap #finance #gale-using-and-tradning-asset-swaps
In par/par asset swap, the distortion due to an inappropriate assumption on the funding can be very substantial where a bond trades far from par.
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owner: piotr.wasik - Using and Trading Asset Swaps - Giles Gale (Morgan Stanley), p7

the sale of the bo nd are not independent transactions, to model the spre ad fairly, we need to understand the financing co st of the upfront payment. This will depend on the coll ateral agreements in place with each counterparty. <span>The distortion due to a n inappropriate assumption on the funding can be ver y substantial where a bond trades far from par. The interest rate implicit on the loan of P-100 is Libor since it is repaid via a swap (for which the discount curve is Libor). But this is only appropriate if L ibor is the rig



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