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Asset Swaps and ASCOTs
What are the differences between CB Asset swaps and ASCOTS, apart from convenience (due to the lack of intermediate cashflows for ASCOTs)? I mean how does an ASCOT differ from an asset swap in valuation and risk management perspective? When is the probable situation to use ASCOT and when to use asset swap?
Asset Swaps and ASCOTs
Fixed income investors prefer asset swaps in order to avoid interest rate risk: they receive LIBOR + spread for holding an asset at par.Hedge funds trade ASCOTS as they (often) cannot trade swaps for lack of credit lines with their counterparties. From a risk point of view (Greeks), only rho is different.