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Derivatives

  Derivatives   |   Terms
  • 1092
  • October 11, 2020
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Premium Swap

An interest rate swap by which the counterparties agree to an interest rate that differs from the prevailing market rates. The counterparty benefiting from the difference (i.e., the fixed-rate payer) is obligated to pay the other counterparty a swap premium known as a “yield adjustment fee” as compensation for the off-market rate. Furthermore, if the fixed-rate payer decides to prematurely make any payments that would be owed later under the swap contract, an upfront payment should be made at the time to the tune of the present value of all prepaid amounts.

The premium swap is a type of off-market swap.


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