Single-payment IRS

[aarabadji]

Hi everyone,

I have a question regarding encoding single-payment IRS. These are not zero-coupon swaps, they just have a single-payment. The calculation period basically always equals to the duration of the swap. For example, a 4MO swap that would pay at the end. These swaps are typically short term (less than 1 year).

I noticed that there seems to be “an unwritten convention” to encode such swaps with 1Y calculation period frequency. Can you please explain if this is actually valid from validation rules perspective? Can I have a swap which is 4 months long that has 1Y calculation period frequency?

Looking at the validation rules there seems to be no guidance offered to handle such condition:

cashflows element not present: the unadjusted calculation period dates are calculated by stepping through the regular-period() at the frequency specified in calculationPeriodDates/calculationPeriodFrequency. The first date is the start date of the regular-period() and the last date is the end date of the regular-period().

So is FpML software meant to handle a case of stepping through a 3mo swap with a 1y period, and essentially, “clamp” such cashflows to 1 date?

My personal view is that 1T frequency should be used for such swaps but I got some feedback that 1T is often treated as a reserved value for either OIS or zero-coupon swaps, so sending FpML with 1T makes some parsers interpret the swap as zero-coupon.

Would like to hear your thoughts on this. Should 1T or 1Y be used for such swaps to emphasise single-payment/single-calculation aspect of such contracts?

• This topic was modified 7 years, 7 months ago by aarabadji.
• This topic was modified 7 years, 7 months ago by aarabadji.
• This topic was modified 7 years, 7 months ago by aarabadji.

[h_mcallister]

Hi Arty,

I agree that in this case the calculation (and payment) period is best expressed as “1T”. I’m not aware of an “unwritten convention” to encode such swaps with a 1Y period – although I have seen trade bookings done this way (i.e. with a period longer than the actual term, to avoid the term being sub-divided into shorter periods).

OIS swaps are typically transacted for a single, possibly irregular, period of up to 1Y duration. By common convention these are represented with calculation-, payment- and reset- Period all = 1T, with reset relative to the calculation period end date. This pattern is indicative of a single-period OIS – but does not imply that the “1T” idiom is reserved to OIS swaps (it is not).

Zero coupon swap streams should be booked with paymentFrequency=1T, to signify that the (single) payment period spans the term of the trade.

Best regards,
Harry

• This reply was modified 7 years, 7 months ago by h_mcallister.
• This reply was modified 7 years, 7 months ago by h_mcallister.
• This reply was modified 7 years, 7 months ago by h_mcallister.

[lyteck]

test message (to be deleted) June 8

adding to the thread hoping I get an email notification

Lyteck

[lyteck]

test message (to be deleted) June 13

adding to the thread hoping I get an email notification.

HARRY PLEASE REPLY IF YOU GET AN EMAIL.

Lyteck

[lyteck]

test message (to be deleted) June 22

adding to the thread hoping I get an email notification.

HARRY (and others) PLEASE LET ME KNOW IF YOU GET AN EMAIL: llynhiavu@isda.org

Thanks,
Lyteck

[lyteck]

test message (to be deleted) June 29

adding to the thread hoping I get an email notification.

Harry, Arty, PLEASE LET ME KNOW IF YOU GET AN EMAIL: llynhiavu@isda.org

Thanks,
Lyteck

[Author]

Posts