QuantBondCurves (version 0.3.1)

valuation.swaps: Swap valuation

Description

Function that values Interest Rate Swaps (IRS) and Cross Currency Swaps (CCS).

Usage

valuation.swaps(
  maturity,
  analysis.date = Sys.Date(),
  asset.type = "IBRSwaps",
  freq = 4,
  coupon.rate,
  rates,
  float.rate = NULL,
  spread = 0,
  principal = 1,
  Legs = "FF",
  ex.rate = NULL,
  basis.rates = NULL,
  coupon.rate2 = NULL,
  rates2 = NULL,
  float.rate2 = NULL,
  spread2 = 0,
  principal2 = NULL,
  rate.type = 1,
  daycount = "NL/365",
  loc = "BOG",
  convention = "F",
  trade.date = NULL,
  coupon.schedule = "SF"
)

Value

Swap value for Interest Rate Swap (IRS) or Cross Currency Swap (CCR).

Arguments

maturity

Last day of the contract: YYYY-MM-DD. Alternatively, it can be a numeric value that represents the duration of the contract in years.

analysis.date

Date in which the asset is valued. By default, the current date.

asset.type

String that determines the asset type to value. See also 'Details'.

freq

Frequency of payments of a given asset in a year. For LIBOR and IBR the default frequency is four (quarterly payments). TES has a default frequency of one (annual payments).

coupon.rate

For (IRS), coupon rate of the fixed leg. For (CCS), coupon rate of local fixed leg.

rates

For (IRS) discount rates given by the zero coupon rate curve. For (CCS), represents discount rates for local currency. Can be a vector that corresponds to each coupon date or a curve with at least, nodes with 3 decimals.

float.rate

For (IRS), last observed floating rate, necessary for variable leg when swap valuation date doesn't belong to a coupon date. For (CCS), last observed local floating rate. By default, NULL.

spread

Decimal value of spread added to coupon payment rate. By default, 0.

principal

For (IRS), notional amount for both legs. For (CCS), notional amount of local leg.

Legs

For (CCS), string that establishes the type of both legs that makeup the Cross Currency Swap. See also 'Details'.

ex.rate

Exchange rate on analysis date. Format has to be local currency divided by foreign currency.

basis.rates

"Discount rates" given by the basis curve. Can be a vector that corresponds to each coupon date or a curve with at least, nodes with 3 decimals.

coupon.rate2

Coupon rate of the foreign leg. By default, NULL.

rates2

Discount rates given by the foreign zero coupon rate curve. Can be a vector that corresponds to each coupon date or a curve with at least, nodes with 3 decimals.

float.rate2

Last observed foreign floating rate. By default, NULL.

spread2

Decimal value of spread added to foreign floating rate. By default, 0.

principal2

Notional amount for the foreign leg. By default, NULL.

rate.type

(1) for annual compounded discount rates and (0) for continuosly compounded discount rates. By default, rates are assumed to be the former.

daycount

Day count convention. See also 'Details'.

loc

String related to the location of the asset. It is used to calculate the effective dates, taking into account the business days of the given location. See also 'Details'.

convention

String that establishes if the effective dates are calculated using Following, Modified Following, Backward or Backward Following. See also 'Details'.

trade.date

The date on which the transaction occurs. It is used to calculate maturity as a date, when given in years. Also required for non-trivial cases such as bonds with long first coupon.

coupon.schedule

String that establishes if a bond first coupon period is a long first coupon or a short first coupon. On the contrary, establishes if last coupon period is long last coupon or a short last coupon. See also 'Details'.

Details

asset.type makes reference to the following type of assets:

• "IBRSwaps" for swaps indexed to IBR rate.

• "LIBORSwaps" for Interest Rate Swaps (IRS) indexed to 3M LIBOR.

• "CCS" for cross currency swaps.

daycount convention accepts the following values:

• 30/360.

• ACT/365.

• ACT/360 (Default).

• ACT/365L.

• NL/365.

• ACT/ACT-ISDA

• ACT/ACT-AFB

convention makes reference to the following type of business day conventions:

• "F" for Following business day convention.

• "MF" for Modified Following business day convention.

• "B" for Backward business day convention.

• "MB" for Modified Backward business day convention.

coupon.schedule makes reference to the following type of coupon payment schedule of a bond:

• "LF" for Long First coupon payment.

• "LL" for Long Last coupon payment.

• "SF" for Short First coupon payment.

• "SL" for Short Last coupon payment.

Legs makes reference to the following types of legs composition of the cross currency swap

• "FF" for fixed leg in local currency and fixed leg in foreign currency.

• "FV" for fixed leg in local currency and variable leg in foreign currency.

• "VF" for variable leg in local currency and fixed leg in foreign currency.

• "VV" for variable leg in local currency and variable leg in foreign currency.

Examples

# (IRS) ----------------------------------------------------------------------
valuation.swaps(maturity = "2026-06-01", analysis.date= Sys.Date(),
                coupon.rate = 0.06, rates = 0.08, float.rate = 0.03)
valuation.swaps(maturity = "2021-03-09", analysis.date= "2018-03-09",
                coupon.rate = 0.05, rates = 0.08, rate.type = 0)
valuation.swaps(maturity = "2026-07-01", analysis.date = "2023-01-02",
                asset.type = "IBRSwaps", freq = 4,
                coupon.rate = 0.04, rates = rep(0.05,14),
                float.rate = 0.03, spread = 0)
# (CCS) ----------------------------------------------------------------------
# Curve Calibration for rates input
yield.curve <- c(0.103,0.1034,0.1092, 0.1161, 0.1233, 0.1280, 0.1310, 0.1320, 0.1325)
names(yield.curve) <- c(0,0.08,0.25,0.5,1,2,3,5,6)
nodes <- seq(0, 10, by = 0.001) # Our curve has nodes with three decimals.
rates <- curve.calibration (yield.curve = yield.curve, market.assets = NULL,
                            analysis.date = "2023-03-01", asset.type = "IBRSwaps",
                            freq = 4, rate.type = 0, daycount= "ACT/365",
                            fwd = 0, npieces = NULL, nodes = nodes, approximation = "constant")

# Curve Calibration for basis.rates input
nodes  <- seq(0, 10, by = 0.001)
rates2 <- rates/4 # It is assumed foreign curve is proportional to local spot curve.
# Swaps input for calibration
ex.rate <- 4814
swaps <- rbind(c("2024-03-01", "FF", 0.07 , 0.0325, NA   , NA    , 2000 * ex.rate, 2000),
c("2025-03-01", "VV", NA   , NA    , 0.015, 0.0175, 2000 * ex.rate, 2000),
c("2026-03-01", "FF", 0.075, 0.03  , NA   ,  NA   , 500000, 5000000 / ex.rate),
c("2027-03-01", "VV", NA   , NA    , 0.01 , 0.015 , 5000000, 5000000 / ex.rate),
c("2028-03-01", "FF", 0.08 ,0.035  , NA   , NA    , 3000000, 3000000 / ex.rate),
c("2029-03-01", "VV", NA   , NA    , 0.01 , 0.0125, 3000000, 3000000 / ex.rate))
colnames(swaps) <- c("Mat"  ,"Legs", "C1" , "C2", "spread1", "spread2", "prin1", "prin2")
# Calibration
basis.rates <- basis.curve(swaps, ex.rate = 4814, analysis.date = "2023-03-01",
                           freq = c(2,2,2,2,1,1), rates = rates, rates2 = rates2,
                           rate.type = 1, npieces = NULL, obj = "Price",
                           Weights = NULL, nodes = nodes, approximation = "linear")

# Valuation
valuation.swaps (maturity = "2024-03-01", analysis.date = "2023-03-01",
                 asset.type = "CCS", freq = 2, Legs = "FF", ex.rate = 4814,
                 coupon.rate = 0.07, coupon.rate2 = 0.0325,
                 rates = rates, rates2 = rates2, basis.rates = basis.rates,
                 float.rate = NULL, float.rate2 = NULL, spread = 0,
                 spread2 = 0, principal = 2000 * 4814, principal2 = 2000,
                 rate.type = 0, daycount = "ACT/365", loc = "BOG",
                 convention = "F")