Valuation models

Total return swaps

Price return and dividends on a stock or index against a floating rate plus spread, with resetting or fixed notional, running periods, par funding spread, equity exposure and PV01.

Inputs

Results

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Methodology

Conventions

  • The total return leg pays the price change and dividends on units = notional / reset price, each period.
  • The funding leg pays the floating rate plus a spread on the notional, reset to the underlying's value or fixed.
  • One deterministic curve forwards the underlying, sets the floating rate and discounts.

References

  • Hull, Options, Futures, and Other Derivatives, ch. 34

Formulas

Price return
n (S e^(−q tᵢ) − S e^(−q tᵢ₋₁) D(tᵢ)/D(tᵢ₋₁))
Funding
Nᵢ (Lᵢ + s) τᵢ D(tᵢ)