Accounting for Interest Rate Swaps

There are major accounting issues for both the counterparties and the principal of an interest rate swap transaction. Currently, the market for swaps well exceeds $150 billion, and at this writing there are no explicit accounting standards for such transactions. This paper defines the basic swap transaction and the relevant accounting issues and offers possible solutions. Notes to the financial statements are needed to reveal the changes in risk, both to the counterparties and to the principal.

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Savings and Loan Capital and the Use of Interest Rate Swaps

The American Economist ◽

10.1177/056943459203600206 ◽

1992 ◽

Vol 36 (2) ◽

pp. 50-57

Author(s):

David Vang

Keyword(s):

Interest Rate ◽

Financial Institutions ◽

Interest Rate Risk ◽

Interest Rate Swap ◽

Savings And Loan ◽

Interest Rate Swaps ◽

Flexible Rate ◽

The Interest Rate ◽

The Relationship ◽

Rate Swap

This paper models the relationship between interest rate swaps and capital in savings and loan associations. The interest rate swap is a way in which financial institutions exchange the flexible rate on their liabilities with a fixed interest rate to hedge themselves from interest rate risk, and therefore reduce the need for a capital cushion. The empirical evidence, however, shows that a small capital cushion reduces the firm's possibility of using interest rate swaps because no partner is willing to engage in a rate swapping contract with a firm that does not have adequate capital and soundness.

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Centralized Trading, Transparency, and Interest Rate Swap Market Liquidity: Evidence from the Implementation of the Dodd–Frank Act

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109018001527 ◽

2018 ◽

Vol 55 (1) ◽

pp. 159-192 ◽

Cited By ~ 5

Author(s):

Evangelos Benos ◽

Richard Payne ◽

Michalis Vasios

Keyword(s):

Interest Rate ◽

The United States ◽

Market Liquidity ◽

Control Group ◽

Market Quality ◽

Transaction Data ◽

Interest Rate Swap ◽

Interest Rate Swaps ◽

Clear Increase ◽

Rate Swap

We use proprietary transaction data on interest rate swaps to assess the effects of centralized trading, as mandated by Dodd–Frank, on market quality. Contracts with the most extensive centralized trading see liquidity metrics improve by between 12% and 19% relative to those of a control group. This is driven by a clear increase in competition between dealers, particularly in U.S. markets. Additionally, centralized trading has caused interdealer trading in EUR swap markets to migrate from the United States to Europe. This is consistent with swap dealers attempting to avoid being captured by the trade mandate in order to maintain market power.

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A double obstacle model for pricing bi-leg defaultable interest rate swaps

European Journal of Applied Mathematics ◽

10.1017/s0956792519000184 ◽

2019 ◽

Vol 31 (3) ◽

pp. 511-543

Author(s):

XINFU CHEN ◽

JIN LIANG

Keyword(s):

Interest Rate ◽

Mathematical Problem ◽

Structure Type ◽

Type Model ◽

Free Boundaries ◽

Initial Value ◽

Fixed Rate ◽

Interest Rate Swap ◽

Interest Rate Swaps ◽

Rate Swap

Two mathematical models under so-called intensity and structure frameworks to pricing a double defaultable interest rate swap are established. The default could happen or jump to a high probability in both fixed and floating parties on the predetermined boundaries. The models lead to a new and interesting mathematical problem. As the intensity approaches infinity in designated regions, the solutions of the intensity models converge to a solution of a structure-type model which is an initial value problem of a partial differential equation coupled with two obstacles problem in their restricted regions. According to the value of the fixed rate, three cases are discussed. The free boundary that determines the swap rate and the free boundaries that determine the earlier termination of the contract (due to counterparty’s default) are analysed.

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