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Examples/Test Cases
Iuliia
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Summary
In Examples 2.11 Example 6a - Fixed/Floating Cross Currency Interest Rate Swap and 2.60 Example 52 - XCCY Swap with a Fallback in version FpML 5.12, the FpML code for fixing legs specifies the compounding method. At the same time, payment frequency and calculation period frequency coincide, respectively, there is no sense in using the compounding method. Therefore, the question is whether this is an error in the examples? And if this is not an error, then please clarify why the compounding method applied for fixing legs in these examples.
Below there is a part of the code for fixed leg from the 2.60 Example 52 FpML version 5.12
<calculationPeriodDatesAdjustments>
<businessDayConvention>NONE</businessDayConvention>
<businessCenters>
<businessCenter>GBLO</businessCenter>
<businessCenter>USNY</businessCenter>
<businessCenter>JPTO</businessCenter>
</businessCenters>
</calculationPeriodDatesAdjustments>
<calculationPeriodFrequency>
<periodMultiplier>6</periodMultiplier>
<period>M</period>
<rollConvention>10</rollConvention>
</calculationPeriodFrequency>
</calculationPeriodDates>
<paymentDates>
<calculationPeriodDatesReference href="calculationPeriodDates-64209467-669"/>
<paymentFrequency>
<periodMultiplier>6</periodMultiplier>
<period>M</period>
</paymentFrequency>
<payRelativeTo>CalculationPeriodEndDate</payRelativeTo>
<paymentDatesAdjustments>
<businessDayConvention>MODFOLLOWING</businessDayConvention>
<businessCenters>
<businessCenter>GBLO</businessCenter>
<businessCenter>USNY</businessCenter>
<businessCenter>JPTO</businessCenter>
</businessCenters>
</paymentDatesAdjustments>
</paymentDates>
<calculationPeriodAmount>
<calculation>
<notionalSchedule>
<notionalStepSchedule>
<initialValue>100500000</initialValue>
<currency>JPY</currency>
</notionalStepSchedule>
</notionalSchedule>
<fixedRateSchedule>
<initialValue>-0.00385</initialValue>
</fixedRateSchedule>
<dayCountFraction>ACT/365.FIXED</dayCountFraction>
<compoundingMethod>Flat</compoundingMethod>
</calculation>
Notes:
Iuliia
10/13/22 8:15 am
Kindly ask you reply for request ASAP.
mgratacos
10/13/22 8:31 am
Hi Iuliia, you are right. These are errors. The compoundingMethod must appear in the floating stream, where there is compounding in both examples. It should not appear in the fixed leg. This should be fixed in the next FpML release. Thanks for reporting this.
jbaserba
01/13/23 12:03 pm
compoundingMethod moved from the fixed to the floating leg for both examples.