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General FpML Discussion › Technical & Implementation Questions › Reset/PaymentFrequency for > 1y OIS trades

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  • May 24, 2010 at 11:07 am #1830
    Mattsville
    Spectator

    Hi, I’ve been reading through the examples to try and figure out the correct FpML values for some OIS trades. I am trying to map OIS trades from a parameterised csv format to FpML format, and can’t figure out what values should go into the FpML in the following case. Can anybody please help? In the example given on fpml.org, example 7 from: http://www.fpml.org/spec/2003/wd-fpml-4-0-2003-08-04/html/fpml-4-0-examples.html#Example%207%20-%20Fixed/Floating%20Overnight%20Interest%20Rate%20Swap%20(OIS) It states: “The calculationPeriodFrequency, paymentFrequency and resetFrequency are all specified as ‘Term’ since payments on the fixed and floating streams occur only at maturity and there is a single calculation period. The rollConvention is specified as ‘None'” This is true for this example, as the trade is less than a year long. However – if the swap was for more than a year – OIS payments are usually per annum, so the frequencies of “1T” no longer make sense. Does anybody know what these values should be here? Intuitively, resetFrequency should be 1T or 1D and both calculationPeriodFreq and paymentFreq should be 1Y – yet this contradicts the FpML specs from above. Can anybody help? What should these vaules be? Thanks very much, Matt

    May 31, 2010 at 3:18 am #1831
    mgratacos
    Keymaster

    Hi Matt, We checked with Harry McAllister, chair of the Interest Rates Working Group. This is the answer he gave us: A swap on an OIS rate spanning a term in excess of a year, with annual accrual and payment frequencies, is represented in much the same way as any other swap with the same characteristics; I would expect to see calculation, payment & reset frequencies as: 1Y , 1Y, 1Y (reverting to 1D would be inconsistent with the established use of 1T in the single-period case). Note that fixing against an OIS index occurs in arrears, so resetDates would have resetRelativeTo = ‘CalculationPeriodEndDate’. The notes in the examples section of the spec (1.8 Example 7 – Fixed/Floating OIS Swap) explain why the reset frequency is not 1D: The floating rate reset date is the last day of the calculation period. The ISDA definition of the OIS floating rate index provides for the compounding of the overnight deposit rates to occur in the process of arriving at the floating rate. There is no need to specify compounding of the rate separately, i.e. calculationPeriodFrequency and paymentFrequency are the same and no compoundingMethod is specified

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