Equity Swap

An equity swap is a financial derivative contract (OTC swap) between two counterparties to exchange two different future cash flows at predetermined dates in the future.

An equity swap consists of two legs. While the first leg is always an equity leg, the second leg can either be an equity leg or a floating leg. The equity leg represents a cash flow based on the performance of either stock assets or a stock market index, such as the S&P 500 Index (SPX). The floating leg component is determined by a floating interest rate determined by a benchmark interest rate such as the London Interbank Offered Rate (LIBOR).

Data Model

In the conceptual data model (CDM), equity swaps are represented by the Equity Swap entity in the OTC Swap conceptual diagram.

You can model equity swaps using the following entities in the CDM:

  • Equity Swap

    This entity represents a contract in which one party exchanges the equity of an underlying for a fixed periodic cash flow, a floating cash flow, or another equity.

  • Interest Equity Swap

    This entity represents an equity swap that consists of a floating leg and an equity leg. An interest is used as the floating leg.

  • Equity Equity Swap

    This entity represents an equity swap that consists of equity legs only. In these legs, a financial instrument or an index is the underlying.

  • Equity Leg on Financial Instruments

    This entity is related to the equity leg in which a financial instrument is the underlying.

  • Equity Leg on Index

    This entity represents an equity leg in which an index is the underlying.

  • Equity Swap Equity Leg

    This entity represents the equity leg of the equity swap. The return is determined based on the changes in the price or index level of the underlying from an initial price or index level to a price or index level observed on one or more valuation dates. If there is no periodic settlement of the contract, the valuation takes place on the termination date of the contract. The valuation dates can be specified using the Valuation Schedule entity.

The following figure is an example of how an equity swap can be modeled in the CDM:

More Information

For more information, see the related entities and their definitions in the data model represented in SAP PowerDesigner.