Abstract
A total return swap is a swap in which one party makes periodic floating rate payments to a counterparty in exchange for the total return realized on a reference asset (or underlying asset). The reference asset could be a credit-risky bond, a loan, a reference portfolio consisting of bonds or loans, an index representing a sector of the bond market, or an equity index. A total return swap can be used by asset managers for leveraging purposes and/or a transactionally efficient means for implementing a portfolio strategy. Bank managers use a total return swap as an efficient vehicle for transferring credit risk and as a means for reducing credit risk exposures. The Duffie-Singleton model can be used to value total return swaps. Keywords: total return swap; Duffie-Singleton model; forward measure
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