This topic explains Asian-style fixed-float swaps and then describes how to use the associated templates in SWPM to price an Asian floater.
An Asian-style fixed-float swap involves the exchange of interest calculated as the average value of a floating rate index over the accrual period against a fixed swap rate. These rates could, for example, reset monthly and pay quarterly. Asian options like caps/floors give the buyer the right to receive the difference between the strike and the unweighted or weighted average of the index rate during the averaging period, if the average is less than the strike. An unweighted average is a simple arithmetic mean of all the reset rates in an averaging period, and a weighted average is the arithmetic average of all the reset rates weighing in year-fraction of the period to which each reset rate applies. For more information about the methodology used, see
Methodologies and Spreadsheets.
You can use shortcuts (e.g., SWPM -EUR -ASIAN <Go> or SWPM -FLFL -ASIAN <Go>) to access Asian swap templates from the command line, or you can click the Products toolbar button to choose a template from a menu.
• For more information about shortcuts, see Shortcuts.
• For information about how to load templates from the toolbar, see Choosing a Template.
SWPM's Asian swap template is organized into eight tabs that allow you to set up and analyze the swap. You can structure and value your swap on the Main tab of the template, which is divided into four sections. You can input details of the swap in the Leg1, Leg2, and curve data sections, then evaluate the swap in the valuation section.
only the discount curve. The Z-Spread is the spread of the stripped, zero-coupon curve that makes the multi-leg deal
• Control Area: Allows you to navigate between tabs, analyze deals, set up scenarios, manage risk, generate trade tickets,
and configure your default settings. For more information, see Control Area.
• Leg 1: Allows you to configure your settings for the fixed leg of the deal. You can enter, for example, the market side, notional amount, currency, effective date, maturity, and fixed coupon for the deal. At the bottom of the section, the market value, accrued interest since the last leg cashflow date, premium, and DV01 for the fixed leg appear. For information about a field, position your cursor over it or see Definitions.
• Leg 2: Allows you to configure your settings for the floating leg of the deal. You can enter the market side, the notional
amount (SWPM supports asymmetric notionals), the index used to calculate the average floating rate, along with the reset frequency, pay frequency, tenor, and other details. At the bottom of the section, the market value, accrued interest since the last leg cashflow date, premium, and DV01 for the floating leg appear.
— For information about a field, position your cursor over it or see Definitions.
— For information about how to add or copy a leg, see Adding a Leg and Copying a Leg. — For information about scaling reset rates, see Scaling Reset Rates.
— For information about editing leg characteristics such as date generation, amortization, and payoff information, see
Configuring Leg Details.
• Curve/Volatility Data: Allows you to update the curves and volatilities that SWPM uses to discount cashflows and project forward pricing when calculating the Market Value of the option. The Vol Cube drop-down menu allows you to choose between Flat volatility (manual input) and volatilities from the Volatility Cube (VCUB) function.
SWPM calculates the market value of the deal using the curve and volatilities selected in this section at the market close of the day indicated in the Curve Date field. The Valuation date is the date at which future cashflows are discounted.
Note: By default, SWPM prices swaps as of today, i.e., the default curve date is the current date and the valuation date is T+2. To price swaps as of a historical date, you must backdate the Curve Date and Valuation fields. For example, to mark to market at quarter's end, you can enter the historical quarter-end date in both the Curve Date and Valuation fields. For more information, see Backdating the Valuation.
— For information about how to update the curves that appear by default, see Setting a Source Curve. — For information about VCUB, see VCUB <Help>.
— For information about updating the amortization method and schedule, see Amortization Methods and Amortization
Schedule.
— For information about how to visualize, customize, and apply shifts to the selected curve, see Analyzing Curves. • Valuation: Allows you to select the variable you want to solve for and evaluate the swap. You can calculate the market
value of the deal (the sum of the present values of the receive leg minus the sum of the present values of the pay leg), or you can customize the valuation by choosing a variable from the Calculate drop-down menu. You can solve for the following variables: Premium295, Notional296, Leg1: Coupon297, Leg2: Spread298, Leg2: Leverage299, Par Shift...300,
Z-Spread...301. For more information about a field, position your cursor over a field or see Definitions.
You can further analyze Asian swaps by selecting another tab from the control area. Additionally, you can save your deal by selecting Actions > Save from the toolbar. Once you save the deal, you can access it from other Bloomberg functions or through Bloomberg's API by entering the deal number followed by the <CORP> key. For example, this allows you to download the cashflow schedule for an individual leg to Microsoft® Excel with Bloomberg's API.
• For information about the other tabs that appear on the template, see SWPM Tabs. • For more information about saving deals, see Saving Deals.
• For examples of using the template to price a plain vanilla swap, see Example: Solving for Spread and Example: Solving for
Price.
• For information about Bloomberg's API, see DAPI <Help>.