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Derivatives


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ARS


It stands for absolute return swap; an asset swap in which the payoff is made at a set of prespecified dates, where it is determined in the absolute difference between the current underlying price and the value of the underlying on the preceding fixing date. At each payment date, the performance of the underlying (such as a stock) is exchanged and the swap resets. The exposure of such a swap neither, nor close to, zero. For instance, if the underlying is a dividend-paying share of stock, the discounted expectations of future prices are not equal to the current stock prices.


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