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Derivatives

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  • September 24, 2021
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Leveraged Rate Swap

An interest rate swap in which the floating rate leg pays LIBOR square (LIBOR is raised to the second power) or any power of the floating rate. Examples include the LIBROR-squared swap and the cubed swap. Since it is highly leveraged (the gearing is amplified by the power function), the leveraged swap, which is also called a power swap, can be substantially riskier than regular swaps (vanilla swaps).


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