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oSWPir2_Price( ) Example

specification

Consider a 5-year interest rate payer swap that has a valuation date of 12 August 2003. Both the fixed and the floating legs of the swap have an effective date of 20 April 2003, a first coupon date of 1 October 2003, and a maturity date of 1 October 2008.

The fixed leg pays an annual coupon of 7.50%, and has Business Day and Accrual conventions of 'following day' and 'actual/360' respectively. The floating leg pays an annual coupon with a reset margin of 10 basis points, and has Business Day and Accrual Conventions of 'modified following day' and '30/360 PSA', respectively. The floating leg has a constant notional of $1,000,000 and a previous reset rate of 5.75%. The fixed leg notional starts at $1,000,000 and decreases by $100,000 at each annual rate reset.

The rate reset cycle is computed backwards from the maturity date, while rates and discount factors are interpolated using zero rates supplied from the zero curve.

What is the fair value of the swap assuming a settlement date of 14 August 2003?

 

 

Function Specifications

=oSWPir2_Price_FX("12/8/2003", "14/8/2003", "20/4/2003", "1/10/2003", "", "1/10/2008", 0.075, P1:R6, 1, 1, 3, 3, 1, 2, J1:L24, N1:N75, 0)

=oSWPir2_Price_FL("12/8/2003", "14/8/2003", "20/4/2003", "1/10/2003", "", "1/10/2008", 0.0575, 10, 1000000, 1, 2, 5, 8, 1, 2, J1:L24, N1:N75, 0)

 

 

 

 

 

Parameter Name

Fixed Leg
Parameter Value

Floating Leg
Parameter Value

 

 

 

Value Date

12/8/2003

12/8/2003

 

Settlement Date

14/8/2003

14/8/2003

 

Effective Date

20/4/2003

20/4/2003

 

First Coupon Date

1/10/2003

1/10/2003

 

Penultimate Coupon Date

 

 

 

Maturity Date

1/10/2008

1/10/2008

 

Past Reset Rate

N/A

0.0575

 

Coupon Rate Margin

N/A

10

 

Coupon Rate

0.07500

N/A

 

Notional

P1:R6
see Forward Curve
see Date Generation

100,000

 

Notional Payment

1

1

 

Payment Frequency

1

2

 

Business Day Convention

3

5

 

AccrualBasis

3

8

 

Date Generation

1

1

 

Interpolation Method

2

2

 

Zero Curve

J1:L24
See Zero Curve

J1:L24
See Zero Curve

 

Holiday Schedule

N1:N75
See Holiday Schedule

N1:N75
See Holiday Schedule

 

Output Flag

0

0

 

 

 

Fixed Leg Solution

The following results are obtained for the Fixed Leg:

Fair Value

$261,481.73

Accrued Interest

$24,166.67

Effective Duration

2.22653

Effective Convexity

5991.8591

Price Value of a Basis Point

$59.23

Par Swap Price Denominator

$3,486,423.05

Par Price Notional Adjustment

$0.00

 

 

 

Floating Leg Solution

The following results are obtained for the Floating Leg:

Fair Value

$280,935.32

Accrued Interest

$18,841.67

Par Swap Rate Numerator

$280,935.32

 

 

 

Swap Solution

The fair value of this payer swap is therefore the Floating Leg fair value less the Fixed Leg fair value:

Fair Value

$280,935.32 - $261,481.73 = $19,453.59

Accrued Interest

$8,841.67- $24,166.67 = $-5,325.00

Par Swap Rate

(280,935.32 / $3,486,423.05) - $0.00 = 8.0580%

 

 

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