A blended equity swap that involves many equity indexes from different countries or geographical locations. This swap is a combination of several standard equity swaps. For example, the blended index of the swap can be constructed of 50% FTSE 100 index, 20% S&P 500 AND 10% Nikkei index. The following exhibit illustrates the structure of a rainbow equity swap:
This swap can be seen as a blended index swap consisting of more than two indexes from different countries. The overall weight of the underlying indexes’ returns is equal to one.
