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Migration plan of Risky Total Return Swap to Bond Return Swap
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics.
2020 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesisAlternative title
Migrationsplan för Risky Total Return Swap till Bond Return Swap (Swedish)
Abstract [en]

Since the 2008 crisis, the hedging instruments have gained popularity with financial institutions. This is the case of the total return swap that is used today by major institutions like Goldman Sachs or J.P. Morgan. Murex is a software provider for financial institutions. The company already had a total return swap product, the RTRS (for Risky Total Return Swap), but with the growing demand Murex decided to develop a new product, the BRS (Bond Return Swap). So now they have two bond total return swaps.

This master thesis aims to analyze total return swap and highlight the improvement of the BRS. After a theoretical analysis of the total return swap, a test campaign is realized. For different types of bond and different configurations of total return swap, formulas are derived to be compared to the returned values. The results given by the RTRS are good on basic bonds. If the bond is more complex, for instance a bond with credit risk or an amortized bond, the values returned by the RTRS are not reliable if not wrong. On the other hand, the BRS performs well in every situation and positions itself as the best total return swap proposed by Murex.

Abstract [sv]

Sedan finanskrisen 2008 har hedginginstrument blivit allt viktigare för finansinstitut. Detta är fallet med det så kallade Total Return Swaps (TRS) som används idag av stora institutioner såsom Goldman Sachs och J.P. Morgan. Murex är en mjukvaruleverantör som redan hade en TRS produkt, den RTRS (Risky Total Return Swap) . Men med den växande efterfrågan beslutade fretaget att utveckla en ny produkt, den så kallade BRS (Bond Return Swap). Så nu har de två TRS:ar.

Denna uppsats syftar till att analysera Total Return Swap och belysa de förbättringar som tillförs av BRS. Efter en teoretisk genomgång av TRS realiseras en serie tester. För olika typer av obligationer och olika konstellationer av TRS härleds formler och jämförs deras värden. Resultaten från RTRS verkar vara bra på basobligationer. Om obligationen är mer komplex, till exempel en obligation med kreditrisk eller en amorterad obligation, är RTRS returnerade värden inte tillförlitliga om inte fel. Å andra sidan presterar BRS bra i alla situationer och positionerar sig som det bästa Total Return Swap som föreslagits av Murex.

Place, publisher, year, edition, pages
2020.
Series
TRITA-SCI-GRU ; 2020:030
Keywords [en]
Total Return Swap, applied mathematics, financial mathematics
Keywords [sv]
Total Return Swap, applied mathematics, financial mathematics
National Category
Mathematics
Identifiers
URN: urn:nbn:se:kth:diva-269434OAI: oai:DiVA.org:kth-269434DiVA, id: diva2:1415888
External cooperation
MUREX
Subject / course
Financial Mathematics
Educational program
Master of Science in Engineering -Engineering Physics
Supervisors
Examiners
Available from: 2020-03-20 Created: 2020-03-20 Last updated: 2020-03-20Bibliographically approved

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