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Quality Spread Differential (QSD)

What is 'Quality Spread Differential - QSD'

In an interest rate swap, the difference between the interest rates of debt obligations offered by two parties of different creditworthiness that engage in the swap. A swap transaction is considered beneficial to both parties only when the QSD is positive.

Explaining 'Quality Spread Differential - QSD'

For example, suppose ABC Corp can borrow debt at a fixed rate of 10.75% or at a floating rate of LIBOR. And let's say that XYZ Corp. can borrow debt at a fixed rate of 10% or at a floating rate of LIBOR -0.25%. The fixed rate differential would be 0.75% and the floating rate differential would be 0.25%. The QSD would be 0.5%.

Since the QSD is positive, both companies would benefit from entering into a swap transaction.


Further Reading


Alternative explanations of interest rate swaps: A theoretical and empirical analysis
www.jstor.org [PDF]
… QSDs are not exploitable to the extent that Jonk- hart's model explains observed differentials … An explana- tion for the quality spread differential based on risk aversion is provided by … He suggests that the difference in quality spreads between short and long- term maturities …

Borrowing cost reduction by interest rate swaps––an option pricing analysisBorrowing cost reduction by interest rate swaps––an option pricing analysis
www.sciencedirect.com [PDF]
… QSDs are not exploitable to the extent that Jonk- hart's model explains observed differentials … An explana- tion for the quality spread differential based on risk aversion is provided by … He suggests that the difference in quality spreads between short and long- term maturities …

On the Performance Drivers of US Treasury Inflation-Protected Securities.On the Performance Drivers of US Treasury Inflation-Protected Securities.
search.ebscohost.com [PDF]
… QSDs are not exploitable to the extent that Jonk- hart's model explains observed differentials … An explana- tion for the quality spread differential based on risk aversion is provided by … He suggests that the difference in quality spreads between short and long- term maturities …

Monte Carlo Simulation Analysis on the Costs Reduction Argument of Interest Rate SwapsMonte Carlo Simulation Analysis on the Costs Reduction Argument of Interest Rate Swaps
absel-ojs-ttu.tdl.org [PDF]
… QSDs are not exploitable to the extent that Jonk- hart's model explains observed differentials … An explana- tion for the quality spread differential based on risk aversion is provided by … He suggests that the difference in quality spreads between short and long- term maturities …

EVALUATING MONETARY POLICY MEASURES IN A SMALL PRIMARY-EXPORTING ECONOMY: THE CASE OF TRINIDAD & TOBAGOEVALUATING MONETARY POLICY MEASURES IN A SMALL PRIMARY-EXPORTING ECONOMY: THE CASE OF TRINIDAD & TOBAGO
www.jstor.org [PDF]
… QSDs are not exploitable to the extent that Jonk- hart's model explains observed differentials … An explana- tion for the quality spread differential based on risk aversion is provided by … He suggests that the difference in quality spreads between short and long- term maturities …

A thumbnail sketch of derivative securities and their regulationA thumbnail sketch of derivative securities and their regulation
heinonline.org [PDF]
… QSDs are not exploitable to the extent that Jonk- hart's model explains observed differentials … An explana- tion for the quality spread differential based on risk aversion is provided by … He suggests that the difference in quality spreads between short and long- term maturities …

The Fiscal Tool for Secondary Education ReformThe Fiscal Tool for Secondary Education Reform
www.jstor.org [PDF]
… QSDs are not exploitable to the extent that Jonk- hart's model explains observed differentials … An explana- tion for the quality spread differential based on risk aversion is provided by … He suggests that the difference in quality spreads between short and long- term maturities …


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