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GAINS FROM SYNTHETIC FINANCINGS WITH INTEREST RATE SWAPS: FACT OR FANCY?

GAINS FROM SYNTHETIC FINANCINGS WITH INTEREST RATE SWAPS: FACT OR FANCY? Footnotes 1 . A formal model that reflects the arguments made in this paper can be found in John F. Marshall and Kenneth R. Kapner, Understanding Swaps , John Wiley & Sons, 1993, Chapter 7. 2 . While this example is hypothetical, and thus the results are somewhat contrived, the “cost” estimates presented below reflect our collective “best guess.” 3 . In the article that follows, Richard Kish and Myles Livingston estimated the value of the corporate call provision to have been about 60 basis points per annum over the period 1980‐1986. It should be noted, however, that the average maturity of their sample of debt issues was 15 years and that at least actual interest rate volatilities were considerably higher during the early '80s than today. 4 . Alternatively, perhaps because of “information asymmetries,” the firm may be able to convince an “inside” lender such as its banker to guarantee its loan or provide a revolving credit agreement at significantly lower cost than the credit uncertainty premium required by “outside” public debt markets. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Applied Corporate Finance Wiley

GAINS FROM SYNTHETIC FINANCINGS WITH INTEREST RATE SWAPS: FACT OR FANCY?

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Publisher
Wiley
Copyright
Copyright © 1993 Wiley Subscription Services, Inc., A Wiley Company
ISSN
1078-1196
eISSN
1745-6622
DOI
10.1111/j.1745-6622.1993.tb00237.x
Publisher site
See Article on Publisher Site

Abstract

Footnotes 1 . A formal model that reflects the arguments made in this paper can be found in John F. Marshall and Kenneth R. Kapner, Understanding Swaps , John Wiley & Sons, 1993, Chapter 7. 2 . While this example is hypothetical, and thus the results are somewhat contrived, the “cost” estimates presented below reflect our collective “best guess.” 3 . In the article that follows, Richard Kish and Myles Livingston estimated the value of the corporate call provision to have been about 60 basis points per annum over the period 1980‐1986. It should be noted, however, that the average maturity of their sample of debt issues was 15 years and that at least actual interest rate volatilities were considerably higher during the early '80s than today. 4 . Alternatively, perhaps because of “information asymmetries,” the firm may be able to convince an “inside” lender such as its banker to guarantee its loan or provide a revolving credit agreement at significantly lower cost than the credit uncertainty premium required by “outside” public debt markets.

Journal

Journal of Applied Corporate Finance – Wiley

Published: Sep 1, 1993

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