It sounds like your kids are a bit older than my toddlers so I am going purely on instinct here not experience. First I would ask what is making them frustrated at that moment and to verbalize it, like, "I didn't like it that you took my toy away, that's not nice..." If the bad name calling persists, take away things that are dear to them for the day.  If they are old enough, I may also do like a bad word jar where you can put chores on a pieces of paper and if they use a bad name they have to pick one, it could work for you too because moms and dads make mistakes too!

my children are older and do the same. but i started to call them back names with funny overtones they end up laughing at it rather than continuing the names. I say "your a fruity chicken face" or " listen here chicken legs" my kids eend up saying "thats stupid dont talk like that" so i tell them they sound just as silly with the names they call each other at present.sometimes it doesnt work but if it takes away from the more nasty and evil alternative its worth a try.