Equity Swaps: Swap Dealers and Pricing

Equity swaps are widely traded by financial institutions, but most of them have an equity swap dealer as the counterparty. We examine the role of equity swap dealers, and their importance in acting as the link between the two parties, and we outline how they hedge the transactions. We look at the steps involved in pricing an equity swap, and then demonstrate the part played by supply and demand, and the ability to hedge, on the price of an equity swap.