Trades That Can Be Structured On These Indices
1. Asset Side: These trades are usually structured for institutional clients looking to invest their money in a different asset class. A typical trade would involve leveraged returns on an index with a floor on the performance.
2. Liability Side: These trades are aimed at corporate clients such as mid size companies and banks which are looking for ways to service their loans. A typical trade would involve the corporate client paying Fixed – Leverage*Index Performance and receiving Libor + Spread to service their loan. More recent trades entail the client paying a fixed rate below the fair interest rate swap and receiving an index designed to replicate the Libor (e.g. MMI by Deutsche Bank) – such a saving for the client (interest rate swap – fixed rate) is due to the lower forwards implied by the index (by construction) and the client bearing any potential basis risk (difference between index and Libor).
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