FpML-IRD Re: Inverse floater question

[harry.mcallister@xxxxxxxxxxxxxxxxx]

Yuval,

I'm afraid you haven't understood correctly
:-(

Party A (the payer on the floating leg)
pays 8.5% - USD 3M Libor; party B pays 4.5% (fixed). The "inverse
floating" behaviour of the trade is described entirely within the
floatingRateCalculation component on the floating leg:

        <floatingRateCalculation>
         
      <floatingRateIndex>USD-LIBOR-BBA</floatingRateIndex>
         
      <indexTenor>
         
              <periodMultiplier>3</periodMultiplier>
         
              <period>M</period>
         
      </indexTenor>
         
      <floatingRateMultiplierSchedule>
         
              <initialValue>-1.0</initialValue>
         
      </floatingRateMultiplierSchedule>
         
      <spreadSchedule>
         
              <initialValue>0.085</initialValue>
         
      </spreadSchedule>
        </floatingRateCalculation>

Note that a multiplier applies to the
floating rate (floatingRateMultiplierSchedule/initialValue);
the multiplier value = -1.0 serves to invert the observed rate. Next, a
spread schedule (margin) also applies (spreadSchedule/initialValue).
Typically, the margin would be a small value, of the order of a few basis
points or tens of basis points, however here the value is 0.085 i.e. 8.5%.
So the applied floating rate is computed as -1.0 * (USD 3M Libor) + 8.5%
i.e. 8.5% - (USD 3M Libor).

Please note, brief descriptions of all
the FpML sample trades can be found at : http://www.fpml.org/spec/fpml-4-5-5-tr-1/html/fpml-4-5-examples-frame.html
(although please note, for this example, the libor rate is incorrectly
described as EURIBOR).

Best regards,

Harry McAllister
Chair, IRD-WG

Fixed Income Architecture
BNP Paribas
+44 (0)20 7595 3416

Internet  
y.avidor@xxxxxxxxxxxxxxxxxxxx

26/02/2009 16:38

To	irdwgchair@xxxxxxxx
cc
Subject	Inverse floater question

Hi,
 
I have a question about the representation
of an inverse floater swap in fpml.
This is what I understand from the example
in the Schema
and Example files zip file,
and please correct me if I'm getting this wrong:
 
I see that there is one swapStream representing
the floating leg.
If I understand correctly, the other swapStream,
is supposed to represent a leg of a fixed rate minus a floating index.
 What I see is that this leg only has a fixed rate, and I'm guessing
that it is understood that the index in the other leg (the floating leg),
will be subtracted from this fixed rate.
 
If this is the case, how would you represent
an inverse floater swap that each one of it's legs is based on a different
floating index?
 
 
Thanks in advance,
 
Yuval Avidor
Integration Developer
SD-Connect
y.avidor@xxxxxxxxxxxxxxxxxxxx
Phone: 972 (3) 6074264
Internal: 4264

---

 

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