Total return swaps for stock index

A total return swap is a derivative contract where one counterparty pays sums based on a floating interest rate, for example Libor plus a given spread, and receives payments based on the return of a reference asset such as a bond, stock or equity index.

How do you calculate total return swap?

To price a total return leg of a total return swap, calculate the expected price returns from the reference asset by comparing the forward prices from period to period. These price returns are present valued back to the value date.

Can you have a total return swap on a stock?

So while a hedge fund may have heavy exposure to a stock through swaps with multiple banks, it isn’t subject to disclosure laws that a very large shareholder would be. A total return swap allows an investor, such as a hedge fund, to invest in assets without owning them.

What is total return equity swap?

A total return swap is a swap agreement in which one party makes payments based on a set rate, either fixed or variable, while the other party makes payments based on the return of an underlying asset, which includes both the income it generates and any capital gains.

Is equity swap the same as total return swap?

A total return swap is a modified equity swap; it also includes in the performance any dividends paid by the underlying stocks or index during the period until the swap maturity. Equity risk in a portfolio can also be managed using equity futures and forwards.

What is total return swap with example?

Are Total Return Swaps off balance sheet?

The TRS is an off-balance sheet transaction and the reference asset does not appear on the balance sheet of the receiver.

Is a CFD a total return swap?

A contract for difference (CFD) is similar to a total rate of return swap except that payment only occurs once on the contract expiration date. A CFD may have a single stock, a basket of stocks, or an index as its underlying reference asset.