7. MATERIALES Y MÉTODO
7.6 TÉCNICAS Y PROCEDIMIENTO
This topic explain basis swaps and then describes how to use the associated templates in SWPM to price a basis swap. A basis (float-float) swap is when both counterparties make interest payments based on a floating rate index (e.g., Libor, Treasury bills, commercial paper, or Euribor). A same currency basis swap occurs when both floating indices share the same currency. For example, one leg may be reset according to the USD three-month Libor while the other leg may be reset according to the USD commercial paper rate (other basis index rates include, for example, prime rate, fed funds, Euribor 1M vs. Euribor 3M, and muni index rates). If the two floating indices are in different currencies, it is called a "cross currency basis swap". When they share the same currency, they are called "basis swaps" or "same currency basis swaps".
You can choose between the following single-currency or cross-currency basis swap templates in SWPM: fixed-fixed, fixed-float, or float-float. You can use shortcuts (e.g., SWPM -1MLB <Go>) to access basis 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 basis swap templates are 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/Leg 2: Allows you to configure your settings for the legs of the deal. You can enter, for example, the market side, notional amount (SWPM supports asymmetric notionals), currency, effective date, maturity, and the index used to calculate the floating rate for the deal, 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 each leg appears.
— 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 Data: Allows you to update the curves that SWPM uses to discount cashflows and project forward pricing when
calculating the Market Value of the swap. Depending on whether your swap is fixed-fixed, fixed-float, or float-float, different settings appear. SWPM calculates the market value using the selected curve 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 both 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 a field, position your cursor over it or see Definitions.
— For information about how to update the curves that appear by default, see Setting a Source Curve.
— 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: Premium228, Notional229, Leg1: Spread230, Leg1: Leverage231, Leg2: Spread232, Leg2: Leverage233, Par
Shift...234, and Z-Spread...235. For information about a field, position your cursor over it or see Definitions.
You can further analyze basis 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>.
CMS
This topic explains constant maturity swaps (CMS) and describes how to use the associated templates in SWPM to price a CMS.
There are two types of in-arrears swaps in SWPM: fixed-float (in arrears) and CMS. CMS differ from regular fixed-to-float or float-to-float swaps because the floating leg does not reset periodically to Libor or other short term indices, but resets to a long-term rate, e.g., the five-year swap rate. For example, one leg can be a fixed rate or a floating Libor rate in exchange for the ten-year swap rate. For CMS, convexity adjustment and volatility are included in the calculation. The convexity adjustment applies if the tenor of the reference rate is greater than one year.
You can use shortcuts (e.g., SWPM –FXFL –CMS <Go> or SWPM –FLFL –CMS <Go>) to access CMS 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.
228 1.) In the Calculate drop-down menu, calculates the market value based on your inputs. The Market Value appears in the
Valuation section. 2.) The premium, calculated as (Market Value / Notional) x 100.00. 3.) In the Solver drop-down menu,
calculates the net present value (NPV) based on your inputs. The NPV appears in the Results section.
229 1.) In the Calculate drop-down menu, calculates a notional amount based on your DV01 input. The Notional appears in
the Leg 1/Leg 2 sections. 2.) Applies to an individual swap leg. The notional value of the swap leg.
230 Calculates the spread above/below the index selected for Leg 1, based on your Premium input. The Spread appears in
the Leg 1 section. For example, for an inflation swap, Leg1: Spread solves for the spread above the CPI(T)/CPI(0) ratio.
For a float-float muni swap, Leg1: Spread solves for the spread above/below, e.g., LIBOR.
231 Calculates the floating leg leverage based on your Premium input. The Leverage appears in the Leg 1 section. For
example, for an inflation swap, Leg1: Leverage calculates the leverage applied to the CPI(T)/CPI(0) ratio. For a float-float
muni swap, Leg1: Leverage solves for the percentage of the index rate to be paid/received.
232 Calculates the floating leg spread based on your Premium input. The Spread appears in the Leg 2 section. 233 Calculates the floating leg leverage based on your Premium input. The Leverage appears in the Leg 2 section.
234 Displays the Par Shift Quick Calculator, a scenario analysis tool that allows you to analyze the relationship between the
discount curve and the premium. The Par Shift Quick Calculator presumes that cashflows are unchanged and shifts only
the discount curve. Par shift is the shift on the par curve (not stripped).
235 Displays the Z-Spread Quick Calculator, a scenario analysis tool that allows you to analyze the relationship between the
discount curve and the premium. The Z-Spread Quick Calculator presumes that cashflows are unchanged and shifts
only the discount curve. The Z-Spread is the spread of the stripped, zero-coupon curve that makes the multi-leg deal
• For information about how to load templates from the toolbar, see Choosing a Template.
SWPM's CMS templates are organized into nine 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.
• 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/Leg 2: Allows you to configure your settings for the legs of the deal. Depending on whether your swap is fixed-float or float-float, different settings appear. You can enter, for example, the market side, notional amount (SWPM supports asymmetric notionals), currency, effective date, maturity, and the fixed coupon or the index used to calculate the floating rate for the deal, 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 each leg appears.
— 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 Data: Allows you to update the curves that SWPM uses to discount cashflows and project forward pricing when
calculating the Market Value of the swap. Depending on whether your swap is fixed-float or float-float, different settings appear. The Vol Cube drop-down menu allows you to choose between Flat volatility (manual input) and volatilities from the
Volatility Cube (VCUB) function. By default, the volatility for swaps in arrears and CMS come from VCUB.
SWPM calculates the market value using the selected curve 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 both 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 a field, position your cursor over it or see Definitions.
— For information about how to update the curves that appear by default, see Setting a Source Curve.
— For information about how to visualize, customize, and apply shifts to the selected curve, see Analyzing Curves. — For information about customizing the convexity adjustment, see CMS: Convexity Adjustment.
— For information about VCUB, see VCUB <Help>.
• 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: Premium236, Notional237, Leg1: Spread238, Leg1: Coupon239, Leg1: Leverage240, Leg2: Spread241, Leg2:
Leverage242, Par Shift...243, and Z-Spread...244. For more information about a field, position your cursor over it or see
Definitions.
You can further analyze CMS 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>.
236 1.) In the Calculate drop-down menu, calculates the market value based on your inputs. The Market Value appears in the
Valuation section. 2.) The premium, calculated as (Market Value / Notional) x 100.00. 3.) In the Solver drop-down menu,
calculates the net present value (NPV) based on your inputs. The NPV appears in the Results section.
237 1.) In the Calculate drop-down menu, calculates a notional amount based on your DV01 input. The Notional appears in
the Leg 1/Leg 2 sections. 2.) Applies to an individual swap leg. The notional value of the swap leg.
238 Calculates the spread above/below the index selected for Leg 1, based on your Premium input. The Spread appears in
the Leg 1 section. For example, for an inflation swap, Leg1: Spread solves for the spread above the CPI(T)/CPI(0) ratio.
For a float-float muni swap, Leg1: Spread solves for the spread above/below, e.g., LIBOR.
239 Calculates the fixed coupon based on your Premium input. The Coupon appears in the Leg 1 section.
240 Calculates the floating leg leverage based on your Premium input. The Leverage appears in the Leg 1 section. For
example, for an inflation swap, Leg1: Leverage calculates the leverage applied to the CPI(T)/CPI(0) ratio. For a float-float
muni swap, Leg1: Leverage solves for the percentage of the index rate to be paid/received.
241 Calculates the floating leg spread based on your Premium input. The Spread appears in the Leg 2 section. 242 Calculates the floating leg leverage based on your Premium input. The Leverage appears in the Leg 2 section.
243 Displays the Par Shift Quick Calculator, a scenario analysis tool that allows you to analyze the relationship between the
discount curve and the premium. The Par Shift Quick Calculator presumes that cashflows are unchanged and shifts only
the discount curve. Par shift is the shift on the par curve (not stripped).
244 Displays the Z-Spread Quick Calculator, a scenario analysis tool that allows you to analyze the relationship between the
discount curve and the premium. The Z-Spread Quick Calculator presumes that cashflows are unchanged and shifts
only the discount curve. The Z-Spread is the spread of the stripped, zero-coupon curve that makes the multi-leg deal
OIS
This topic explains overnight indexed swaps (OIS) and then describes how to use the associated template in SWPM to price an OIS.
An OIS is similar to a fixed vs. float swap in which the floating index is a one-day rate like the fed funds rate (EONIA or SONIA in EUR and GBP). The floating index is compounded daily and paid at maturity typically after one year, which is the standard term for an OIS. An OIS is used to manage deposits, assets and liabilities, liquidity, and investor funds in a brokerage/asset management account.
You can use shortcuts (e.g., SWPM -OIS <Go>) to access the OIS 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 OIS 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 Leg 1,
Leg 2, and curve data sections, then evaluate the swap in the valuation section.
• 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 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 Data: Allows you to update the curves that SWPM uses to discount cashflows and project forward pricing when
calculating the Market Value of the swap. SWPM calculates the market value using the selected curve 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 both 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 a field, position your cursor over it or see Definitions.
— For information about how to update the curves that appear by default, see Setting a Source Curve.