Total Fair Value Swap

摘要

A synthetic instrument known as a “Total Fair Value Swap” is disclosed. According to one embodiment, the Total Fair Value Swap may comprise an agreement between two counterparties, a “Fixed Rate Payer” and a “Floating Rate Payer”. According to the agreement, the Fixed Rate Payer makes a stream of payments to the Floating Rate Payer based on a fixed rate, and the Floating Rate Payer makes a second stream of payments to the Fixed Rate Payer based on a floating rate, wherein a first portion of the floating rate is based on a reference interest rate, and wherein a second portion of the floating rate is based on a credit spread associated with the Floating Rate Payer. The reference interest rate may be, for example, London Inter-Bank Offer Rate (LIBOR), prime interest rate, the US dollar swap rate, the U.S. Treasury Bond rate or any other widely traded interest rate that is reset periodically. The credit spread may be observed from the Credit Default Swap (CDS) market.

主权项

1. A computer-based financial system for facilitating a Total Fair Value Swap transaction between a first counterparty and a second counterparty, the system comprising:
means for interfacing the first and second counterparties to the system and for accessing and monitoring data associated with the Total Fair Value Swap transaction; database means for storing and maintaining records related to the Total Fair Value Swap transaction, the records reflecting the first counterparty's obligation to make one or more fixed payments to the second counterparty and the second counterparty's obligation to make one or more floating payments to the first counterparty, wherein the one or more fixed payments are based on a reference interest rate and the one or more floating payments are based at least in part on a credit spread associated with the second counterparty; rate monitoring means implemented by a processor for deriving the credit spread from a credit default swap market and for periodically determining the floating payment amount based at least in part on the credit spread, the rate monitoring means being further operable to determine the fixed payment amount by adjusting the reference interest rate on a periodic basis; and transaction management means, operatively coupled to the means for interfacing, the database means and the rate monitoring means, for tracking the one or more fixed payments and the one or more floating payments.