How Do You Price A Swap?


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Mary Frederick Profile
Mary Frederick answered
First, let me say you do not price a Swap yourself. A Price Swap is an obligation of one company to another company. When a company is declining in value another company comes to the rescue by using their assets in a committment of shares. A perfect example of Price Swap is the Enron company through which assets were used to inflate the value of a declining company by hiding its losses. Because of the volatility of the stock market, devalution in price of Enron, directly related to the committment of more shares and the result was dilution. Dilution means the earnings per share of common stock was reduced by the issuing of additional stock shares and conversion of convertible securities. The holdings of shareholders was reduced drastically as shares continued to be issued, and in the end Enron failed and many, many people lost their life's earnings. Many of the shareholders were bankrupted in the end.

There are two really good sites, which provide great information about Price Swaps and the pros and cons of such an investment. I will give you the two links and if they fail, just copy and paste or type them into you internet web browser search bar and click. The first site is Investopedia at www.investopedia.comterms/p/priceswapderivative.asp
And, second is  Do not add the http://or the get to this page. If, you lose it, then type Price Swap into your web browser search bar and click. This page will be the third site down and reads: "What is an interest rate swap? Interest rate swaps" Click this link for information.  Also by doing this you will find several more sites on this same page and each site has Price Swap information.

This is good question and there is a lot of information about the topic.

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