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Thank you for your explanation. I was some what curious as to whether the spread is also driven by the costs associated with borrowing the underlying equities so as to be able to hedge/provide the performance of the swap on the equity leg. Could that also be a contributing factor?

On the interest rate leg of an equity swap there is often a spread paid over the reference rate eg. 3M LIBOR. Should these spreads be considered as a risk factor and an input to a VaR model?