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Derivatives

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  • July 15, 2021
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Total Return Mortgage Index Swap

A total return index swap in which the reference index (or asset) is a mortgage index. The swap is marked to market on a periodic basis but is settled at expiration. This structure allows investors to have a leveraged exposure to the entire mortgage market. However, it exposes the investor to counterparty credit risk and liquidity risk. Furthermore, in this form of swap, the investor gives up the potential to outperform the mortgage index through active management.


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