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Derivatives




Power Swap


An interest rate swap in which the floating rate leg pays LIBOR square (LIBOR, or any floating reference rate, 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 power swap, which is also called a leveraged swap, can be substantially riskier than regular swaps.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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