The Swap-Driven Deal
Keith C. Brown
Donald J. Smith
Intermarket 6, 1989, pp. 15-19
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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