Credit Default Swaps & Your Love Life

This is a vast divergence from the normal subject of this site. But it’s an idea a friend and I had, and I think it’s pretty brilliant.

As a background, in an “interest rate swap,” a common variation of the more infamous “credit default swap,” two parties take a large “notional sum,” an imaginary sum of money, and each imagine they possess it, but will possess it going forward subject to different interest rates. Usually the rates are equal to start (e.g., the “prime rate,” and some other rate that varies). So you take your sum subject to interest rate Y%, and I take mine subject to X%. Over time, rates X and Y diverge. At the end of every month, we see how our imaginary sum has fared with its interest rate, and “net” the values. The party who’s “in the money,” or whose sum would have gained more interest, receives the difference from the party who’s “out of the money.” Usually these deals have steep termination payments, and end if a party enters bankruptcy or experiences a similar “event of default.”

In basic terms, then, the parties trade risk based on imaginary entities, and actual, unknowable variances.

Here’s my variation on the theme. Assume two relationship-oriented single friends. Imagine, next, that the events that occur in anyone’s life are quantifiable, either in terms of money, or in terms of something more fun, like donuts. Here’s a schedule of value:

  • First date: one donut
  • Second date: two donuts
  • First kiss: double the value of the date on which it occurs
  • Third date: three donuts (and so on up until)…
  • Relationship so-called & Facebook-official: five donuts
  • Ahem, romantic acts associated therewith: ten donuts (you can retool this item to exclude any payout outside of a relationship, therefore incentivizing against one-night stands and infidelity, etc.)
  • Meaningful anniversary (one quarter, six months, one year, etc.): fifteen donuts
  • Engagement: fifty donuts

At the end of any given month, the friends total the value of their month, and swap the difference. This can be done either in a positive or negative way: the more successful swap party can be incentivized to greater success by winning if she’s “in the money,” or the “losing” party can be compensated for having a rough month, by receiving the victor’s difference. It depends on what the friends want. Confidentiality outside the swap is assumed.

(Note that if the swap parties themselves start dating, the swap is equal, and nets zero every month after the first. We hope. An interesting eventuality.)

Marriage would have to be an event of default. Termination payments could be steep: e.g., the terminating party has to buy out the counterparty’s entire month. The swap could also require a term common in Lehman’s swap deals: the exiting party can’t exit leave the swap (marry) unless he (or she) finds a replacement counterparty.

I’ll go draw up the transaction documents.



  1. I like donuts more than the next guy, but that all just sounds really stupid to me. Betting somebody donuts that they’ll go on a date – why in the sphincter of hell would somebody do that?

    1. Depends on how much you like donuts.

  2. Incentive structures?

%d bloggers like this: