Negative Swap Spreads and Limited Arbitrage

• 成果类型: Article
• 署名作者: Jermann, Urban J.
• 署名单位: University of Pennsylvania; National Bureau of Economic Research
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhz030
• 发表日期: 2020
• 页码: 212
• 关键词: portfolio; default; COSTS; RISK

摘要

Since October 2008, fixed rates for interest rate swaps with a 30-year maturity have been mostly below Treasury rates with the same maturity. Under standard assumptions, this implies the existence of arbitrage opportunities. This paper presents a model for pricing interest rate swaps, where frictions for holding bonds limit arbitrage. I analytically show that negative swap spreads should not be surprising. In the calibrated model, swap spreads can reasonably match empirical counterparts without the need for large demand imbalances in the swap market. Empirical evidence is consistent with the relation between term spreads and swap spreads in the model.