A substitution swap is an exchange of bonds undertaken to
A) change the credit risk of a portfolio.
B) extend the duration of a portfolio.
C) reduce the duration of a portfolio.
D) profit from apparent mispricing between two bonds.
E) adjust for differences in the yield spread.

Question

Quizplus · Accepted Answer

A substitution swap involves exchanging two bonds to profit from apparent mispricing, without necessarily changing the overall credit risk, duration, or yield spread of a portfolio.

A Substitution Swap Is an Exchange of Bonds Undertaken to