Basis Swap - Curve Underlying

 

Before you begin

• Create rate indices using Configuration > Interest Rates > Rate Index Definitions from the Calypso Navigator.

 

Creating a Basis Swap Underlying

The basis swap underlying has two floating sides, and can be cross currency.

» Select a currency at the bottom of the window.

You can click Load to load any existing underlying.

» Click New to create a new underlying.

Complete the fields described below.

» Click Save to save the underlying. It is given a unique ID by the system, and is displayed in the table.

 

The system creates quote names like: "Swap.<Currency>.<Maturity>.<Base rate index>.<Base tenor>/<Basis rate index>.<Basis tenor>.<Basis source>".

Example "Swap.USD.1Y.LIBOR.3M/LIBOR.6M.LIBOR01".

 

Fields Details

Fields Description

Currency

 Base currency selected at the bottom of the window.

Maturity

 Enter the maturity of the swap: number of Days, Weeks, Months, or Years.

Basis Ccy

 Select the basis currency. Modifying this to a different currency will prompt you to enter FX information.
Specific Dates

When checked, you can specify a specific start data and a specific end date in the adjacent fields.
Actual

Check to indicate that there is an actual principal exchange.

Then select which principal is exchanged from the adjacent field: Initial, Final, Initial and Final.

FX Adj. on

FX Rate reset

Only used if Basis Ccy is different from default currency.

Select the leg for FX adjustment: "Base" or "Basis".

You can select and FX Rate Reset to set the FX rate.

Quote Type

Spread / Factor / Inflation Real Rate

You can choose the quote type: "Spread", "Factor" or "Inflation Real Rate", and the leg to which it applies "Basis" or "Base".

If you select Spread, the underlying will be quoted using a spread quote.

If you select Factor, the underlying will be using a factor quote.

If you select Inflation Real Rate, the underlying will be using the fixed real rate on the inflation leg.

For a spread quote, if you select Basis, the spread will be added to the Basis leg, and if you select Base, the spread will be added to the Base leg. It will be multiplicative instead if you check "Multiplicative Spread".

For a factor quote, if you select Basis, the factor will multiply the basis leg, and if you select Base, the factor will multiply the base leg.

 

Base Side

Fields Description

Index

 Select the rate index, tenor and source.

Cmp

Check for compounding interest.

You can select the compounding frequency and stub method. Double click on the blue text to select 'Flat', 'Spread' (and enter a spread) or 'Simple'.

Manual 1st Reset

Check to indicate that the first reset is manual.

DateRoll

 Select the date roll convention - From the Calypso Navigator, navigate to Help > Date Roll Conventions for details.

Holidays

 Select the holiday calendars.

Freq

 Select the payment frequency.
Disc. Select a discount.

Rule

 Select the accrual period adjustment rule on non-business days.

Daycount

 Displays the daycount convention from the rate index definition.
Stub Select a stub period as needed.
Reset Timing

Select the reset timing: beginning of the period, or end of the period.

Averaging Reset

Avg Freq.

Day of Sampling

Check "Averaging Reset" if the rate resets more frequently than the swap.

In this case, you need to select the averaging frequency, and day of sampling if needed.

You can also select the type of average by toggling the red label:

• Equal - Resets within the sampling period are equally weighted.
• Weighted - Resets are weighted according to the number of days for which they apply. For example, if a reset occurs on a Monday, the weight is 1 day; if it occurs on a Friday, the weight is 3 days (Friday, Saturday and Sunday).
• Simple - The reset rate is calculated as the mean rate within the sampling period.
• Cutoff - Calculates weighting up to cutoff date. The cutoff date is set as a number of days from the last sample period’s end date.

 

Basis Side

Fields Description

Index

 Select the rate index, tenor and source.

Cmp

Check for compounding interest.

You can select the compounding frequency and stub method. Double click on the blue text to select 'Flat', 'Spread' (and enter a spread) or 'Simple'.

Manual 1st Reset

Check to indicate that the first rest is manual.

DateRoll

 Select the date roll convention.

Holidays

 Select the holiday calendars.

Freq

 Select the payment frequency.
Disc. Select EXP if the swap should have exponential interest, or NONE otherwise.

Rule

 Select the accrual period adjustment rule on non-business days.

Daycount

Displays the daycount convention from the rate index definition.
Stub Select a stub period if needed..
Reset Timing Select the reset timing: beginning of the period, or end of the period.

Averaging Reset

Avg Freq.

Day of Sampling

Check "Averaging Reset" if the rate resets more frequently than the swap.

In this case, you need to select the averaging frequency, and day of sampling if needed.

You can also select the type of average by toggling the red label:

• Equal - Resets within the sampling period are equally weighted.
• Weighted - Resets are weighted according to the number of days for which they apply. For example, if a reset occurs on a Monday, the weight is 1 day; if it occurs on a Friday, the weight is 3 days (Friday, Saturday and Sunday).
• Simple - The reset rate is calculated as the mean rate within the sampling period.
• Cutoff - Calculates weighting up to cutoff date. The cutoff date is set as a number of days from the last sample period’s end date.
Inflation Indexed

This only applies when the rate index is an inflation index.

It drives the calculation type for applying a change in inflation to the cashflows.

• If checked, the inflation Leg is using the calculation type "InflationIndexation" on both Interest and Principal:

[Final Level / Initial Level]

• If not checked, the inflation leg is using the calculation type "InflationIncome" on Interest:

[(Final Level / Initial Level) - 1]

 

Start Lag

Fields Description

Start Lag

You can check Start Lag to define a start lag.

Double-click the NONE label to define the start lag details (number of lag days, Cal for calendar days or Bus for business days), holiday calendar.