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Currency and liability swaps with default risk

Authors Lam, Mei-Wah
Issue Date 1999
Summary The growth of the swap markets has been phenomenal since the first swap contract structured in 1981. In simple terms, a financial swap is an agreement between two counterparties to exchange cash flows linked to two different indices at one or more dates in the future. This thesis is concerned with the currency and liability swaps under default risk. The behaviours of the values of these swaps under different seniority rules and default mechanisms of the issuers are analyzed. In the currency swap, the observations are that the limited two-way payment is more valuable to the default free Party and the swap with higher foreign exchange rate is less valuable to the Party who has default risk. In the liability swap, the observations are that the senior swap is more valuable to the default free Party. Moreover, the swap with a constant default barrier is more valuable to the risky Party who prefers to exchange his variable liability to be fixed.
Note Thesis (M.Phil.)--Hong Kong University of Science and Technology, 1999
Language English
Format Thesis
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