An Economic Analysis of Interest Rate Swaps

  • Author(s): JAMES BICKSLER, ANDREW H. CHEN
  • Published: Apr 30, 2012
  • Pages: 645-655
  • DOI: 10.1111/j.1540-6261.1986.tb04527.x

ABSTRACT

Interest rate swaps, a financial innovation in recent years, are based upon the principle of comparative advantage. An interest rate swap is a useful tool for active liability management and for hedging against interest rate risk. The purpose of this paper is to provide a simple economic analysis of interest rate swaps. Alternative uses of and the appropriate valuation procedure for interest rate swaps are described.

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