11 VARIANCE PRODUCT ARCHITECTURE

11.1 Variance Derivatives Scope

The Equity Derivative Working Group extended FpML to cover:

11.2 Overall Architecture

Variance Swaps and Options are modelled using the following product element in FpML:

images/equity-options/ClassHierarchy.gif

these components provide support for:

11.2.2 varianceSwap

varianceSwap specifies the structure of a variance swap.

schemaDocumentation/schemas/fpml-variance-swaps-5-4_xsd/elements/varianceSwap.png

    • productType - A classification of the type of product. FpML defines a simple product categorization using a coding scheme.
    • productId - A product reference identifier allocated by a party. FpML does not define the domain values associated with this element. Note that the domain values for this element are not strictly an enumerated list.
    • additionalPayment - Specifies additional payment(s) between the principal parties to the netted swap.
    • extraordinaryEvents - Where the underlying is shares, defines market events affecting the issuer of those shares that may require the terms of the transaction to be adjusted.
    • varianceLeg - Variance leg. The maximum allowable number of variance legs has been increased to unbounded to allow Variance Dispersion to be supported.

11.2.3 varianceSwapTransactionSupplement

varianceSwapTransactionSupplement specifies the structure of a variance swap transaction supplement. This modelled using the same variance legs as Variance Swap, but does not allow for long form content such as extraordinary events.

schemaDocumentation/schemas/fpml-variance-swaps-5-4_xsd/elements/varianceSwapTransactionSupplement.png

11.2.4 VarianceLeg

varianceLeg - A type describing return which is driven by a Variance calculation.

schemaDocumentation/schemas/fpml-variance-swaps-5-4_xsd/complexTypes/VarianceSwap/varianceLeg.png

    • legIdentifier - Version aware identification of this leg. (e.g. Variance Dispersion typically involves many legs, with 1 IVS and 50 EVS legs being typical. Leg Identifier has been introduced as an optional child element to support identification of each of these legs.)

11.2.5 varianceOptionTransactionSupplement

varianceOptionTransactionSupplement specifies the structure of a variance option transaction supplement. VarianceOptionTransactionSupplement implements Variance Option Transaction Supplement by providing a short form representation for use in trades governed by a Master Confirmation Agreement.

schemaDocumentation/schemas/fpml-variance-swaps-5-4_xsd/elements/varianceOptionTransactionSupplement.png

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