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Hello everyone,I'm writing a thesys about Synthetic ETFs, in particular I'm trying to analyze the swap between a "sobstituted basket" and a stock market Index (such as S&P, etc...).In definitive, I'm trying to find a sort of standardization of the swap. Doing this I found some problems; I'm going to explain my problems in those questions:1) Which is the difference between a Total Return Swap and an Equity Swap if both of them exchange the return of an Index with the Return of a generic sobstituted basket??2) Which options or other features (like cap, floor, knock-in, knock-out, daily settlement, etc...) are usually added to a plain vanilla TRS?3) Can someone give me an example of an Etf's swap cash flow? Is it possible to find it somewhere?If someone have some materials about this argoment I will be very pleasure to receive it.Thank you all.

for example, the value at time n+1 of an Etf's swap with costant notional principal of 1$ and without foreign exchange, no cost of hedge or other type included, could be:V(n, n+1) = {[I(n+1)/I(n)] - 1} - {[SB(n+1)/SB(n)] - 1} = I(n+1)/I(n) - SB(n+1)/SB(n)where I(n) is the total return index value and B(n) is the sobstituted basket return ??Definited the basket return and starting with this equation, I can model the equation of the value of the payoff adding or changing what I want ??Are there some paper or books where I can find those things?

In a swap based ETF, the ETF (which is a fund) exchanges cash flows with a bank. The ETF receives the positive performance of the underlying and pays an interest amount to the bank (plus fees). If the equity performance is negative, the fund pays the bank the negative performance. the notional amounts are variable to handle inflows and outflows. For efficient management of capital (where the swap is not fully funded), then the ETF may also enter into some other collateralised lending (the fund lends its cash against a basket of securities).

Thank you for answering, I red some papers about synthetic ETFs and i found that, usually, they receive from the counterparty (usually the same bank that creates the ETF) the return of the Index to track, in exchage ETF pays the return of the sobstituted equity basket in his portfolio and not an interest, but maybe I'm wrong. I think that what you are saying is a typical case of a plain vanilla equity swap (return of index vs interest rate fixed or variable).Yes, the notional amount is variable if the swap contract has a life greater than one day; but in some cases the counterparties, for simplicity or other reason such as a major garantee, reset the swap every day at the end of the day. In the last case I think that swap could have a costant notional principal, because the counterparties revise his amount every day, or not?I'm trying to understand something more specific, but maybe I'm a little bit confuse.

what you refer to as the "sobstituted equity basket" is the efficient portfolio management I was referring to. As the swap may only require a small amount of initial margin the ETF will have a lot of cash. it can use this to buy some tbills to generate some yield or go further out and do a collateralised loan.What exactly do you want to model ?

Exactly I don't know yet, because i have to understand better the mechanics of the ETFs's swap. But I would describe, for the most important case, the pricing or the value or only the cash flows of the swap. I'm trying to help myself with formulas of equity swap that I found in the paper "The pricing of equity swap and swaptions" wrote by Don M. Chance and Don Rich (1998).My ideas is about adapting his equation of "two-way equity swap" to the case of an ETF's swap (I just posted a symple example of it behind).I don't know if my explain is very clear, if not i'm sorry of it.

not to worry. but it is not nearly as complicated as you might think it is.

No, fortunately it's not a complicated things, but my questions born from the fact that I didn't find anything about this argument (probably bacause it is a little bit "useless") and one of my doubt was, infact, if it was possible doing this "sort of standardization" for several cases of ETF's swap, for example:- formula of a swap that exchange the return of an index denominated in domestic or foreign currency for the return of a sobstituted basket with stocks denominated in domestic, foreign or both currency; variable notional principal.- formula of a swap that exchange the return of an index denominated in domestic or foreign currency for the return of a sobstituted basket with stocks denominated in domestic, foreign or both currency; costant notional principal (daily-reset case of the swap)- formulas for leverage or short ETF- other cases such as including knock-in or knock-out, cap, floor and more more more....It's possible do this?? Reading your last answer I think yes. Probabily it is a little bit "useless" but, at least, it could be almost "original" Thank you again for your time Dave!!