What risks does do the parties to a total return swap give up and what risks do they take on?
The total return receiver assumes the entire economic exposure—that is, both market and credit exposure–to the reference asset. The total return payer—often the owner of the reference obligation—gives up economic exposure to the performance of the reference asset and in return takes on counterparty credit exposure to the total return receiver in the event of a default or fall in value of the reference asset.
The total return receiver assumes the entire economic exposure – that is, both market and credit exposure–to the reference asset. The total return payer – often the owner of the reference obligation – gives up economic exposure to the performance of the reference asset and in return takes on counterparty credit exposure to the total return receiver in the event of a default or fall in value of the reference asset.
