Cash Settlement Defaults

Cash Settlement Defaults provide default values for the cash settlement of swaptions, and default values for cash settlement details of early terminations.

From the Calypso Navigator, navigate to Configuration > Interest Rates > Cash Settlement Defaults.

 

1. Cash Settlement Defaults Definitions

» Select a type of agreement or ANY. You can specify multiple agreements for the same currency. In this case, the default agreement type should be set in domain "CashSettleDefaultsAgreements".
» Select the rate index and settlement currency.

If you check "Cross Currency" you can select the cross currency and corresponding rate index. The settlement method is set to "Cross Currency Method".

» Select the location and time zone.

 

2. Swaption Defaults

The Swaptions section provides default values for the Exercise/Settlement panel of swaptions.

» Enter the fields described below as needed, and click Save.

 

Swaptions Fields Details

Fields

Description
Settlement Method

Select the settlement method used to compute the settlement details.

• DRV – If this is selected, the method will match the German Master Agreement, rather than the ISDA Master Agreement.
• Cash Price – This is the amount payable under Section 6(e)(ii) of the ISDA Master Agreement on the basis of quotations requested by the Calculation Agent from Cash Settlement Reference Banks using the Quotation Rate (17.2(j), i.e. bid, ask or mid but note "Exercising Party Pays"). If less than 3 quotations are obtained, the Cash Settlement Amount is determined by the Calculation agent.
• Cash Price - Alternate – Similar to Cash Price but quotations are requested by each party and if there are less than 3 quotations, the Cash Settlement Amount will be the average of the amounts determined by each of the parties in good faith and a commercially reasonable manner.
• Par Yield Curve - Adjusted – The Cash Settlement Amount is the present value of an annuity equal to the difference between

(a) the amount payable by the Fixed Rate Payer as if the Fixed Rate were the Settlement Rate and

(b) the amount payable by the Fixed Rate Payer under the relevant swap transaction.

The discount rate will be equal to the Settlement Rate.

The Cash Settlement Amount will be adjusted if the Optional Early Termination Date or the Mandatory Early Termination Date does not fall on the Fixed/Floating Rate Payer Payment Date.

• Par Yield Curve - Unadjusted – Same as "Par Yield Curve - Adjusted" but there is no adjustment based on the Business Day Convention.
• Zero Coupon Yield – Adjusted – This is the same as "Par Yield Curve" But the discount factor is calculated from the agreed current zero coupon curve. If the parties cannot agree on the zero coupon curve, "Cash Price" will be used as the Cash Settlement Method.
• Cross Currency Method – Used for early termination of cross currency swaps
• Collateralized Cash Price – Not currently computed.
• Mid-market Valuation (Indicative Quotations) - One of the ISDA 2021 Interest Rate Definitions.
• Mid-market Valuation (Indicative Quotations) - Alternate Method - One of the ISDA 2021 Interest Rate Definitions.
• Mid-market Valuation (Calculation Agent Determination) - One of the ISDA 2021 Interest Rate Definitions.
• Replacement Value (Firm Quotations) - One of the ISDA 2021 Interest Rate Definitions.
• Replacement Value (Calculation Agent Determination) - One of the ISDA 2021 Interest Rate Definitions.
Valuation Days

Number of days between the trade's exercise date and valuation date.
Payment Days

Number of days between the trade's delivery date and payment date.
Exercise Holidays

Select the holiday calendar to compute the exercise date.
Valuation Holidays

Select the holiday calendar to compute the valuation date.
Payment Holidays

Select the holiday calendar to compute the payment date.

Earliest Exercise Time

Enter the earliest time when the trade can be exercised, in the selected timezone.

Expiration Time

Enter the time at which the trade expires, in the selected timezone.

Valuation Time

Enter the latest time when the trade can be exercised, in the selected timezone.
Quotation Rate

Select the instance of the quotation rate that you want to use: MID, BID, or ASK.

Cash Settlement Ccy1

Only applies for the Cross Currency Method.

Select the primary currency.
Activate Ccy2

Only applies for the Cross Currency Method.

Check to allow entering the cross currency.
Cash Settlement Ccy2

Only applies for the Cross Currency Method.

Select the cross currency.

Automatic Exercise

Check the Automatic checkbox to allow automatic exercise.

 

3. Early Termination Defaults

The Early Termination section provides default values for the Cash Settlement window of any trade (Product menu > Cash Settle Info).

» Enter the fields described below as needed, and click Save.

 

Early Termination Fields Details

Fields

Description
Settlement Method

Select the settlement method used to compute the early termination details.

See "Swaptions Fields Details" above.
Exercise Days

Number of days between the trade's end date and the early termination date. It should be a negative number.
Valuation Days

Number of days between the trade's end date and the valuation date of the early termination. It should be a negative number.
Exercise Holidays

Select the holiday calendar to compute the termination date.
Valuation Holidays

Select the holiday calendar to compute the valuation date.
Payment Holidays

Select the holiday calendar to compute the payment date.

Earliest Exercise Time

Enter the earliest time when the trade can be terminated, in the selected timezone.

Expiration Time

Enter the time at which the trade terminates, in the selected timezone.

Valuation Time

Enter the latest time when the trade can be terminated, in the selected timezone.
Quotation Rate

Select the instance of the quotation rate that you want to use: MID, BID, or ASK.

Cash Settlement Ccy1

Only applies for the Cross Currency Method.

Select the primary currency.
Activate Ccy2

Only applies for the Cross Currency Method.

Check to allow entering the cross currency.
Cash Settlement Ccy2

Only applies for the Cross Currency Method.

Select the cross currency.