Total return swap, TRS (also referred to in German as Ertragstausch and Performance-Swap)

In general, the exchange of current income flowing from an asset – usually a security – for payments based on a contractually agreed reference rate (payment of all cash flows generated by the asset in exchange for payments based on a reference rate such as EURIBOR). – A special type of credit derivative that covers the entire economic risk of a credit relationship. – The protection buyer (floating rate payer) periodically exchanges with the protection seller (fixed rate payer) the income from a reference asset and its increase in value in return for payment of a variable interest rate that is mainly dependent on the credit rating of the reference asset. – The fixed rate payer assumes not only the credit risk of the reference asset but also its market price risk. – As a rule, the counterparties in this transaction are located in different countries or currency areas. – See credit derivative, credit event, option, sleepy warrant. – Cf. Deutsche Bundesbank Monthly Report, April 2004, p. 30 (overview of standard contractual relationships).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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