Forward Rate Agreement (FRA) - Curve Underlying

 

Before you begin

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

 

1. Creating a FRA Underlying

» 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 quotes like: "FRA.<Currency>.<Start tenor>x<Maturity tenor>".

Example for start tenor 1M and end tenor 4M in USD, "FRA.USD.LIBOR.1Mx4M".

 

Fields Details

Fields

 Description

Currency

 Displays the currency selected at the bottom of the window.

Rate Index

Tenor

Source

Select the name of the rate index, tenor and source.

The tenor is the forward tenor.

Start / End:

Tenor

Specific

Date Roll

Hol

Select the start tenor and forward tenor.

You can also check Specific to enter a start date instead.

Select the date roll method when the calculated date for the tenor falls on a non-business day, and the holiday calendar to determine business days.

From Spot

"From Spot" is checked by default to compute the end date based on the spot date. Calibration is checked by comparing the forward DF coming from the curve, between the start and end date of the FRA, with the forward DF consistent with the FRA quote.

You can clear the "From Spot" checkbox to compute the end date using the start date instead. Calibration is checked by solving for the Break Even rate of the FRA using PricerFRA, and comparing the Break Even rate with the FRA quote.

To compute the spot date properly, you need to set the Reference Index attribute SpotDateCalculator = BBARateIndexSpotDateCalculator.

 

2. Creating FRA Underlyings using Date Rules

Click Create Multiple Maturities... to bring up the IMM FRA Multiple Maturities Definition window.

» Select the date rules to generate the FRAs and the number of underlyings you want to generate. Then click Create to create the underlying FRAs.

These underlying FRAs will be rolled during curve generation.