A paired basis swap risk and credit mitigation system and collateral
minimization system. In swaps used to hedge forward contracts a system
authority interposes itself and forms paired basis swaps with each of the
paired swap participants and itself together with a Swaption to allow it
to maintain a level book in the event of a default by any counterparty.
In the event of a default the system authority has the ability to either
terminate a swap and pay the non-defaulting counterparty an agreed upon
termination payment, terminate the non-defaulting counterparty's swap and
exercise the swaption to substitute a correlated swap with appropriate
correlated termination payment; or substitute a new counterparty with an
identical swap as the paired swap participant. Paired basis swap control
through delivery can be enabled to continue the risk and credit
mitigation benefits of the system.