The Swap-Driven Deal

 

Keith C. Brown

Donald J. Smith

 

Intermarket 6, 1989, pp. 15-19

 

 

Abstract

                       

While financial security transactions linked to swap-related contracts can provide substantial benefits to end-users, they also present new areas of risk exposure.  Some of these sources of swap risk are well understood by market participants, but others remain concealed with the structure of the deal.  Built-in uncertainties can have adverse consequences for an end-user that does not understand them and allow for their possibility.  We analyze and illustrate the nature of these overlooked risks in two deal structures and conclude that when these additional exposures are taken into account, the advantages of some swap-driven transactions may disappear.

 

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