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).
April 27, 2023