This topic explains cross-currency swaptions and then describes how to use the associated template in SWPM to create and value cross-currency swaptions.
A cross currency swaption is an option to enter into a cross-currency swap, where one counterparty sells/buys the right to enter into a currency swap with another counterparty on a pre-determined date(s), in which the first counterparty pays a preset fixed or floating rate in another currency. The principal amount for final exchange is set for both currencies.
420 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.
421 The single volatility that can be used in the Black-Scholes model so that the price reproduces the market price. 422 The number of basis points over/under the floating rate index that the floating rate payer is obligated to pay.
Alternatively, the spread amount added to the floater index in the floating rate reset. The latest floating rate = Latest Index
x Leverage + Spread.
423 The factor of the floater index in the coupon reset.
424 The strike rate for the cap. The payoff occurs in a spread option cap if the factored spread is above this rate. The payout
is multiplied by the number in the Receive X field to determine the market value. The risks calculated take this number
into account.
425 The strike rate for the floor.
The payoff occurs in a floor if the fixing is below this rate. For combination deals (collar, straddle, cap spread, floor
spread), you can specify the position for each part of the combination by entering a number in the Rcv X or Pay X fields.
The payout of each part of the combination is multiplied by this position in determining the market value. The risks
calculated take the positions into account.
426 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).
427 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
You can use shortcuts (e.g., SWPM -XCOVFXFL <Go>, SWPM -XCOVFXFX <Go>, or SWPM -XCOVFLFL <Go>) to access the cross currency swaption template 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 cross-currency swaption template is organized into tabs that allow you to set up and analyze the deal. You can structure and value your deal on the Main tab of the template, which is divided into four sections. You can input details of the deal in the Fixed Leg, Floating Leg, and option/curve/volatilities data sections, then evaluate the deal in the valuation section.
• Control Area: Allows you to navigate between tabs, analyze deals, and configure your default settings.
• Fixed Leg: 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 (i.e., the strike) for the deal. From the fixed leg section, you can click the Detail button to display and update details such as the discount curve, roll convention, first payment, the amortization schedule, and calculations calendar for the fixed leg. For definitions of the fields, see Definitions.
• Floating Leg: Allows you to configure your settings for the floating leg of the deal. You can enter the market side, currency, notional amount (SWPM supports asymmetric notionals), and index used to calculate the floating rate, along with the reset frequency, pay frequency, spread, and other details. From the floating leg section, you can click the Detail button to display and update details such as the discount curve, forward curve, roll convention, first payment, amortization schedule, and calculations calendars for the floating leg of the deal. For definitions of the fields, see Definitions.
• Option/Curve/Volatilities Data: Allows you to configure your settings for the option,(e.g., the type428 and first call date),
along with the curves and volatilities that SWPM uses to discount cashflows and project forward pricing when calculating the Market Value of the swaption. The Vol Cube drop-down menu allows you to choose between Flat volatility (manual input) and volatilities from the Volatility Cube (VCUB) function. From the option/curve/volatilities data section, you can click the Correlation button to display and update the correlation between the two short rates and the correlations of each short rate with the FX spot rate.
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. To price swaps as of a historical date, you must backdate the Curve 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 definitions of the fields, see Definitions.
— For information about how to update the curves that appear by default, see Setting a Source Curve. — For information about VCUB, see VCUB <Help>.
• Valuation: Allows you to analyze the sensitivity of the deal and calculate the market value of the deal. At the top of the
section, the market value and accrued interest since the last leg cashflow date for the individual legs appear. The Currency drop-down menu allows you to choose the leg currency that is the report currency for the deal. For definitions of the fields, see Definitions.
You can further analyze cross-currency swaptions 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>.