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| Author: | Minton, B. A. |
| Title: | An empirical examination of basic valuation models for plain vanilla U.S. interest rate swaps |
| Journal: | Journal of Financial Economics
1997 : MAY, VOL. 44:2, p. 251-277 |
| Index terms: | SWAPS PRICING INTEREST RATES BOND MARKETS |
| Language: | eng |
| Abstract: | This study tests the analogy between short-term swaps and Eurodollar strips and finds that fair-value short-term swap rates exist in the Eurodollar futures market. Proxies for differential probability of counterparty default are statistically significant determinants of the difference between OTC swap rates and swap rates derived from Eurodollar future prices for maturities of three and four years. The results are consistent with the implications of the credit enhancements that exist in the futures market, but not in the OTC swap market. Swap pricing is related to corporate bond and Eurodollar futures pricing. |
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