We study the hedging and valuation of variance swaps defined on a swap interest rate. Our motivation is the recognition of the fundamental role of variance swaps in the transfer of variance risk, and the extensive empirical evidence documenting that the variance realized by interest rates is...

The Capital Assistance Program (CAP) was created by the U.S. government in February 2009 to provide backup capital to large financial institutions unable to raise sufficient capital from private investors. Under the terms of the CAP, a participating bank receives contingent capital by issuing...