An equity swap in which one leg is the performance of an equity index and the other leg is the performance of another equity index. This swap has two equity legs rather than one. As such, one counterparty pays the total return on a stock index, such as the S&P 500, and receives the total return on another stock index, say CAC 40. This swap is generally used by investors who want to allocate assets within an equity portfolio composed of stocks traded in one country and wish to convert the components of that portfolio, wholly or partially, to a portfolio comprising stocks traded in another country. The following figure depicts this swap:
The equity call swap is similar in concept to the basis swap. It is also commonly called a relative performance swap
Comments