Figure 1 Mechanics of a par asset swap At initiation Asset Swap buyer purchases bond worth full price P in return for par Bond worth P ee Asset Swap Asset Swap Seller Buyer 100 » UEEEEEEIEEENUUEE En and enters into an interest rate swap paying a ed coupon of C in return for LIBOR plus asset swap spread S. Asset Swap ¢ Sel Asset Swap Buyer Bond LIBOR +S If default occurs the asset swap buyer loses the coupon and principal redemption on the bond. The interest rate swap will continue until bond maturity or can be closed out at market value. Asset Swap Buyer LIBOR + S Full price, also known as the dirty price, includes the accrued interest.