Total rate of return (TROR) swap

Like a credit default swap (CDS), a TROR transfers default risk. But unlike a credit default swap, a TROR also transfers credit deterioration risk (downgrade) and market risk (aka, price risk; interest rate change). The TROR receiver is synthetically long the reference, the payer is synthetically short the reference. The key advantage to the payer is a lack of funding cost (to buy the reference requires funding) which allows for leverage.

Category:

Education

Tags:

• Finance
• Excel
• Quant

[dajieda0]

thanks so much!!

[meganopoullus1]

Very helpful! Thank you

[dpshelley]

Derivatives like the TROR are a big reason why our economy is in distress. These are largely unregulated transactions and companies like AIG failed because of them (CDS). Most people don't understand them, and even those companies buying and selling them don't understand the enormous risk involved. Exposure risk caps should be mandated for all financial firms using them to prevent more meltdowns. These are WMD's.

[LauritZenc]

@tothatextent Yes.

[thedisguisedmaster]

Good one. Thank you!

[yellowwitch1]

this guy's language is really weird

[2237lemon]

Where is Maiden Lane 3 and Aig in all this? Are they the seller of the TROR paying Goldman the difference in the valued assets depreciating?

[namsu22]

excellent

[tothatextent]

Is a Total rate of return (TROR) swap the same as a total return swap?

[Jehan415]

thanks very informative have you uploaded anymore