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I've been wandering if would be possible to value a TRS I have in an unusual way. I would like use the accrual method for the asset leg, since the the asset leg is a long position in an equity and it reset periodically (every 3 months) but price the financing leg using the projected method since this leg has a multi-year tenor maturity and a fix rate, with periodic payments (every 3 months). The purpose of using this "hybrid" so that the value of the TRS contract would be equivalent to the value of holding the same position in the following way: being long on the asset and a debt at a fixed rate. Would it be reasonable to value it this way or is the fact that it's the same contract force me to valuate both leg with the same methodology?

Thank you, Regards,

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  • $\begingroup$ Even when the contract does not explicitly say so, in practice the TRS can be unwound any time. Recognize any P&L from the financing leg beyond today would be too optimistic for my tastes. $\endgroup$
    – Dimitri Vulis
    May 22, 2020 at 6:14

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