Fixed-Income Toolbox™

liborfloat2fixed - Compute par fixed-rate of swap given 3-month LIBOR data

Syntax

[FixedSpec, ForwardDates, ForwardRates] = 
liborfloat2fixed(ThreeMonthRates, Settle, Tenor, StartDate,  
Interpolation, ConvexAdj, RateParam, InArrears, Sigma, 
FixedCompound, FixedBasis)

Arguments

`ThreeMonthRates`	Three-month Eurodollar futures data or forward rate agreement data. (A forward rate agreement stipulates that a certain interest rate applies to a certain principal amount for a given future time period.) An n-by-3 matrix in the form of `[month year IMMQuote]`. The floating rate is assumed to compound quarterly and to accrue on an actual/360 basis.
`Settle`	Settlement date of the swap. Scalar.
`Tenor`	Life of the swap. Scalar.
`StartDate`	(Optional) Scalar value to denote reference date for valuation of (forward) swap. This in effect allows forward swap valuation. Default = `Settle`.
`Interpolation`	(Optional) Interpolation method to determine applicable forward rate for months when no Eurodollar data is available. Default is `'linear'` or 1. Other possible values are `'Nearest'` or 0, and `'Cubic'` or 2.
`ConvexAdj`	(Optional) Default = 0 (off). 1 = on. Denotes whether futures/forward convexity adjustment is required. Pertains to forward rate adjustments when those rates are taken from Eurodollar futures data.
`RateParam`	(Optional) Short-rate model's parameters (Hull-White) `[a S]`, where the short-rate process is Default = `[0.05 0.015]`.
`InArrears`	(Optional) Default = 0 (off). Set to 1 for on. If on, the routine does an automatic a convexity adjustment to forward rates.
`Sigma`	(Optional) Overall annual volatility of caplets.
`FixedCompound`	(Optional) Scalar value. Compounding or frequency of payment on the fixed side. Also, the reset frequency. Default = 4 (quarterly). Other values are 1, 2, and 12.
`FixedBasis`	(Optional). Scalar value. Basis of the fixed side. 0 = actual/actual 1 = 30/360 (SIA, default) 2 = actual/360 3 = actual/365 4 = 30/360 (PSA) 5 = 30/360 (ISDA) 6 = 30/360 (European) 7 = act/365 (Japanese)

Description

[FixedSpec, ForwardDates, ForwardRates] = liborfloat2fixed(ThreeMonthRates, Settle, Tenor, StartDate, Interpolation, ConvexAdj, RateParam, InArrears, Sigma, FixedCompound, FixedBasis) computes forward rates, dates, and the swap fixed rate.

FixedSpec specifies the structure of the fixed-rate side of the swap:

Coupon: Par-swap rate
Settle: Start date
Maturity: End date
Period: Frequency of payment
Basis: Accrual basis

ForwardDates are dates corresponding to ForwardRates (all third Wednesdays of the month, spread 3 months apart). The first element is the third Wednesday immediately after Settle.

ForwardRates are forward rates corresponding to the forward dates, quarterly compounded, and on the actual/360 basis.

Note To preserve input integrity, Tenor is rounded upward to the closest integer. Currently traded tenors are 2, 5, and 10 years.

The function assumes that floating-rate observations occur quarterly on the third Wednesday of a delivery month. The first delivery month is the month of the first third Wednesday after Settle. Floating-side payments occur on the third-month anniversaries of observation dates.

Examples

Use the supplied EDdata.xls file as input to a liborfloat2fixed computation.

[EDFutData, textdata] = xlsread('EDdata.xls');
Settle                = datenum('15-Oct-2002');
Tenor                 = 2;

[FixedSpec, ForwardDates, ForwardRates] =... 
liborfloat2fixed(EDFutData, Settle, Tenor)

FixedSpec = 

      Coupon: 0.0222
      Settle: '16-Oct-2002'
    Maturity: '16-Oct-2004'
      Period: 4
       Basis: 1

ForwardDates =

      731505
      731596
      731687
      731778
      731869
      731967
      732058
      732149

ForwardRates =

    0.0177
    0.0166
    0.0170
    0.0188
    0.0214
    0.0248
    0.0279
    0.0305

liborfloat2fixed - Compute par fixed-rate of swap given 3-month LIBOR data

Syntax

Arguments

Description

Examples

See Also