Price Swap Derivative

AAA

DEFINITION of 'Price Swap Derivative'

A derivative transaction in which one party guarantees a fixed value for the total asset holdings of an entity over a certain period of time. Under a price swap derivative, if the value of the guaranteed assets declines, the counterparty is obligated to deliver stock or other collateral in order to offset any losses.

INVESTOPEDIA EXPLAINS 'Price Swap Derivative'

The price swap derivative was made famous through its use by Enron to guarantee the value of certain "special purpose entities." When the value of the assets held in these special purpose entities declined, these derivatives required the issuance of increasing amounts of Enron shares, resulting in substantial dilution for existing shareholders. Price swap derivatives remain relatively uncommon transactions, due to changes in accounting rules and the availability of more common methods to insure against declines in asset values.

RELATED TERMS
  1. Interest-Rate Derivative

    A financial instrument based on an underlying financial security ...
  2. Financial Analysis

    The process of evaluating businesses, projects, budgets and other ...
  3. Risk Analysis

    The study of the underlying uncertainty of a given course of ...
  4. Asset

    1. A resource with economic value that an individual, corporation ...
  5. Swap Rate

    The rate of the fixed portion of a swap as determined by its ...
  6. Swap Curve

    The name given to the swap's equivalent of a yield curve. The ...
Related Articles
  1. Careers In The Derivatives Market
    Options & Futures

    Careers In The Derivatives Market

  2. Are Derivatives A Disaster Waiting To ...
    Options & Futures

    Are Derivatives A Disaster Waiting To ...

  3. Are Derivatives Safe For Retail Investors?
    Options & Futures

    Are Derivatives Safe For Retail Investors?

  4. An Introduction To Swaps
    Options & Futures

    An Introduction To Swaps

comments powered by Disqus
Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  3. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  4. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
Trading Center