Spread in stub period

[acollist]

Within a Libor term basis swap I have a floating rate leg with a spreadSchedule. This leg also has a short initial stub. My question is, if I want the same spread to apply to the stub as to the regular periods in the leg, do I need to explicitly specify a spreadSchedule in the stubCalculationPeriod’s floatingRateCalculation, or is it implicit that the stub will use the spreadSchedule from the leg’s calculationPeriodAmount if no explicit spread is specified in the stubCalculationPeriodAmount?

[mgratacos]

In my view it is implicit so you don’t need to specify the spread again. The same applies to the floating rate index. If it is the same in the stubs as in the regular periods (same index and tenor) you don’t need to specify it in the stubs. Regards, Marc

[h_mcallister]

Marc’s response requires further clarification. acollist asked: “if I want the same spread to apply to the stub as to the regular periods in the leg, do I need to explicitly specify a spreadSchedule in the stubCalculationPeriod’s floatingRateCalculation”. The answer to this is “yes, the applicable [i]spreadSchedule[/i] must be explicitly specified within [i]stubCalculationPeriodAmount[/i], where it exists”. First, note that [i]stubCalculationPeriodAmount[/i] is required only where an initial- or final- stub period exists, and even then only where the applicable rate calculation differs from the rate calculation specified for the regular periods(*). Where the stub rate calculation is the same for the regular periods, then there is no need to produce [i]stubCalculationPeriodAmount[/i] (or, to put it another way, in the absence of [i]stubCalculationPeriodAmount[/i], any stub rate is calculated in the same way as for the regular periods). Once [i]stubCalculationPeriodAmount[/i] is present, the rate calculation must be specified in its entirety within [[i]initial[/i]|[i]final[/i]][i]Stub[/i], including the [i]spreadSchedule[/i] where applicable. This has to be the case: otherwise, it would not be possible to distinguish between (1) a stub where no spread applies and (2) a stub where the spread is not specified, but is inherited from the rate calculation for the regular periods. I hope that makes sense – please let me know if you have further queries. Harry McAllister irdchair@fpml.org (*) Please note that some implementations (e.g. MarkitWire) always produce [i]stubCalculationPeriodAmount[/i] where a stub exists, irrespective of whether the rate calculation differs from the regular periods.

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