Equity swap

A swap exchanging the return on a share or index for a fixed or floating rate, or for another equity return. It lets an investor take on or shed equity exposure without trading the shares.

Where you will meet it

Equity swap appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Explain the pricing of equity swaps, and work out their no-arbitrage value and say what it means
  CFA Level II · Derivatives and Risk Management

  “An equity swap trades an equity return for a fixed rate, a floating rate or another equity return.”

• Illustrate how equity futures, forwards and swaps can change a portfolio's return and risk profile
  CFA Level III · Derivatives and Risk Management

  “In an equity swap, paying the equity return and receiving a fixed or floating rate sheds exposure while keeping the shares, preserving votes and possibly deferring tax.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

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