FpML Issues Tracker

1200: ird-ex32-zero-coupon-swap.xml is wrong

June 18, 2014

Normal

closed

Minor

Always

Examples/Test Cases

Admin

mgratacos

Summary

There are two problems with this example

1. In the fixed leg the calculationPeriodFrequency/rollConvention has been set to NONE. To be consistent with the effective and termination dates (and the floating leg) it should be '22'.

2. The fixed leg as been defined as 3% calculated annually for 30 years but this means there is potentially compound interest to be accrued however there is no compoundingMethod defined. However, if you add this in then ird-9 is triggered as reset dates are expected when there is compounding.

Either ird-9 needs to be reconsidered or the fixed leg should be expressed as a single 30Y calculation period.

Notes:

  • acollist

    10/14/14 2:02 pm

    I came across the same difficulty in defining the fixed leg of a zero coupon IRS. It seems to me that the example ird-ex32-zero-coupon-swap.xml is probably correct, but the validation rules ird-7 and ird-9 in conjunction prevent a compounding fixed leg from being defined: as it stands the example violates ird-7 due to the absence of the compoundingMethod, but if a compoundingMethod is added it violates ird-9.

    At first sight the compoundingMethod does not seem relevant for a fixed leg (since it only dictates the treatment of the spread) – this suggests ird-7 should be amended.

    However, the permissible values of compoundingMethod include “NONE”, which suggests that some legs with multiple calculation periods per payment period do NOT in fact compound (presumably the amounts are just accumulated in this case). If this interpretation is correct then this distinction is also relevant for fixed legs, and the compoundingMethod *should* then be included on fixed legs (when ird-7 requires it). In this case ird-9 should be removed altogether.

  • acollist

    10/14/14 2:21 pm

    I notice that ird-29 also disallows the presence of a compoundingMethod on a fixed leg.

  • mgratacos

    10/20/14 1:20 pm

    Coordination 2014-10-20 Agreed to use AJ’s fixed example (attached) but we need to add compounding on the fixed leg.

  • acollist

    10/22/14 12:34 pm

    Will there also be an update to the IRD validation rules, to remove those which currently prohibit the compoundingMethod on the fixed leg? (ird-9 and ird-29, at least)

  • rabad

    05/28/19 10:42 am

    validation\products\interest-rate-derivatives\ird-ex32-zero-coupon-swap.xml

    /executionNotification/trade[1]/swap[1]/swapStream[1]/calculationPeriodDates[1]/calculationPeriodFrequency[1]/rollConvention[1] value ‘NONE’ changed to ’22’ to be consisistent
    with the roll convention (ird-57)

  • mgratacos

    05/31/19 12:21 pm

    AWG 2019-05-30

    • Agreement to fix the example so it doesn’t fire business rules.
    • We should find a better example since the current one doesn’t seem based on real data.
  • mgratacos

    05/31/19 12:23 pm

    From Harry McAllister: I note that the example contains a spurious calculationPeriodDates/firstPeriodStartDate element under each stream – these should be removed.

  • mgratacos

    05/31/19 12:48 pm

    Removed the firstPeriodStartDate element.

    The example passes schema and business rule validation.

  • mgratacos

    07/15/19 10:30 am

    Created a separate issue for the creation of a better example:

    http://www.fpml.org/ticket/1260/

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