oIRswpn_BDT1( ) Function

Component

Resolution - IRO Pricing

Function Definition

oIRswpn_BDT1(ValueDate, SwaptionType, ExerciseStyle, ExerciseSchedule, Volatility, StepsPerCoupon, SwapEffective, SwapMaturity, SwapStubDates, Notional, Coupon, Frequency, AccrualBasis, BusDayConv, InterpMethod, ZeroCurve, Holidays, Output)

Calculates the swaption value. Can also return the delta, gamma, theta or vega values.

IRO Types

Interest rate swaptions.

Function Parameters

Parameters

Description

Parameter Type

Restrictions

ValueDate

Valuation date of the swaption.

Date

SwaptionType

Payer or Reciever

Enumerated Constant

1 - Payer
2 - Receiver

ExerciseType

European, Bermudan or American.

Enumerated Constant

1 - European
2 - American
3 - Bermudan

ExerciseSchedule

Lists exercise dates and the termination fee associated with each date. For European swaptions, only the last date is used. For American swaptions, every date between the first and last is assumed to be a valid exercise date.

Curve

Volatility

Annualised volatility of the underlying swap rate, expressed as a decimal.

Double or Curve

Volatility >0%
If entered as a curve, the volatility at the value date will be used to construct the term structure.

StepsPerCoupon

Determines the number of steps used to construct the lattice. The total number of branches in the lattice is also related to the number of coupon periods outstanding between the valuation date and the maturity date of the underlying swap.

Long

Steps per Coupon > 0

SwapEffective

The date from which the underlying swap begins to accrue interest. Also represents the first swap reset date and is needed because the swaption may feasibly be valued prior to the start of the swap.

Date

SwapEffective < SwapMaturity

SwapMaturity

The maturity date of the underlying swap.

Date

SwapMaturity > SwapEffective

SwapStubDates

Only needed if the underlying swap has an odd first or last period.

Array of Dates

2 Dates entered as an array.

First Coupon Date: Date that the first coupon is paid (if swap does not have an odd first period, leave blank).

F.C.D > SwapEffective
F.C.D < P.C.D
F.C.D < SwapMaturity

Penultimate Coupon Date: Date that the penultimate coupon is paid (if swap does not have an odd last period, leave blank).

P.C.D > SwapEffective
P.C.D > F.C.D
P.C.D < SwapMaturity

Notional

The face value of the swap. Assumed to be fixed for the life of the swap.

Double

Coupon

The fixed coupon rate for the fixed leg of the swap.

Double

Frequency

The frequency of the coupon payments.

Enumerated Constant

1 - Annual
2 - Semi - Annual
3 - Quarterly
4 - Monthly
5 - Biweekly
6 - Weekly

AccrualBasis

Basis for determining coupon amounts and accrued interest.

See Day Count Conventions

Enumerated Constant

1 - Act/Act (actual)
2 - Act/Act (bond)
3 - Act/360
4 - Act/365
5 - Act/365 ISDA
6 - Act/365 JGB (NL)
7 - 30/360 ISDA
8 - 30/360 PSA
9 - 30E/360
10 - 30E+/360
11 - Act/365L

BusDayConv

Business day convention. Used to determine the start and end date of each coupon payment period.

See Business Day Conventions

Enumerated Constant

1 - No Adjustment
2 - Previous
3 - Following
4 - Mod Previous
5 - Mod Following
6 - EOM No Adjust
7 - EOM previous
8 - EOM following

InterpMethod

Method used to calculate rates and discount factors from the supplied zero curve.

Enumerated Constant

1 - Discount Factors
2 - Zero Rates

ZeroCurve

The zero curve that is used to project and discount cash flows.

Curve

Holidays

Schedule of non-business days (excluding weekends).

Date Range

Leave blank if not applicable

Output

Indicates which result (or set of results) will be displayed in the worksheet. When returning more than one value, the function must be entered as an array function.

Enumerated Constant

0 - All five outputs
1 - Swaption Value
2 - Delta
3 - Gamma
4 - Theta
5 - Vega

Function Outputs

Output

Description

Swaption Value

The fair value of the swaption.

Delta

Delta measures the risk associated with a shift in the zero curve. This can be approximated by revaluing the swaption based on a zero curve that has been shifted up by 1 basis point.

Gamma

Defined here as the second derivative of the option value with respect to a parallel shift in the zero curve.

Theta

Defined as the sensitivity of option value with respect to time. This is estimated by revaluing the option one day after the specified valuation date.

Vega

Defined as the sensitivity of option value with respect to volatility. This is estimated by revaluing the option using an incremented volatility input.