Total return swap

[Peter van Vliet]

David,
I am a bit lost in vocabulary.. would you agree to;

TRS buyer = payer = protection seller = recieves total return = holds credit risk = receives gains and losses

Thanks again

 

[David Harper CFA FRM]

Hi Peter,

I think buyer = payer; and then, separately, seller = receives total return = holds credit risk and market risk = receives gains and losses

If you see the latest questions I wrote on TRS (aka, TROR), might give some color @ http://forum.bionicturtle.com/threads/p2-t6-209-credit-derivatives-total-return-swaps.6218/

... I try to follow assigned Culp (and the historical FRM body which includes Meissner's Credit Derivatives), such that:

• protection buyer (aka, payer) transfers credit + market risk, by paying interest (on the reference) + value increases (therefore, *receives* any MTM depreciation) to the:
• protection seller who (along with paying LIBOR + spread) receives any gains but also pays any market value losses (depreciation), so this seller "holds" the credit and market risk. I hope that helps,