5.3.1 Zero-coupon Swap (ZCIS)

Zero coupon is enabled through the Derivative Contract Input screen.

For Zero coupon Inflation Swap, the system uses the formula and will generate the payment schedules, using Inflation index. The system to use the formula for the floating leg.

N * [ P(T_M) / P_0 - 1 ]

where, P_0 and P(T_M) are the initial price index and the final price index respectively.

The compounding formula for the Fixed Leg is:

Inflation linked coupon formula = N*((RPIt/RPI0)-1)*(Days/Year)/100

where,

• N=Notional Amount.
• RPIt= Reference Rate at the time of payment.
• RPi0= Reference base Rate at the time of Deal booking.

Fixed Rate Formula = N*((1+r)^n-1)

where,

• N=Notional Amount.
• n=number of period.
• r= Interest Rate.

Below is the example for Zero Coupon Swaps:

Table 5-29 Inflation Index defined

UK-Non-revised Retail Price Index (UKRPI)	GBP
2015 MAR	257.1
2015 APR	258.0
2015 MAY	258.5
2015 JUN	258.9
2015 JUL	258.6
2019 MAR	285.1
2019 APR	288.2
2019 MAY	289.2
2019 JUN	289.6
2019 JUL	289.5

Table 5-30 Zero Coupon swap contract details

Deal Details	Values
Buy or Sell	Buy
Trade Date	25-May-15
Tenor (T)	4 Years
Value Date	1-Jun-15
Maturity Date	1-Jun-19
Notional Amount	100,000

Table 5-31 In and Out Leg Details

Deal	Details 1	Details 2
NA	In Leg (Receive)	Out Leg (Pay)
Currency	GBP	GBP
Notional Amount (P)	100,000	100,000
Rate Type	Indexed	Fixed
Rate	-	2.50%
Rate Code	UKRPI	-
Tenor Code	1M	-
Interpolation Method	-	-
Interest Computation	Simple	Compound
Compounding Frequency (n)	-	Yearly

Table 5-32 Zero Coupon schedules for In Leg

Deal Details	Values
Period Start (TS)	1-Jun-15
Period End (TE)	1-Jun-19
No. of Days (D) = TE-TS	1440
Receive Principal (P)	100,000
Index Value (IT)	285.1
Receive Interest (RI)	10,890.70

Table 5-33 Zero Coupon schedules for Out Leg

Deal Details	Values
Period Start (TS)	1-Jun-15
Period End (TE)	1-Jun-19
No. of Days (D) = TE-TS	1440
Pay Principal (P)	100,000
Rate (R)	2.50%
Pay Interest (PI)	10,381.29
Net Cashflow (RI-PI)	509.41

Table 5-34 Inflation swap contract details

Deal Details	Values
Buy or Sell	Sell
Trade Date	15-May-15
Tenor (T)	4 Years
Value Date	18-May-15
Maturity Date	18-May-20
Notional Amount	100,000

Table 5-35 Inflation Swap Example

Deal Details	Values	Values
-	In Leg (Receive)	Out Leg (Pay)
Currency	USD	USD
Notional Amount (P)	100,000	100,000
Rate Type	Fixed	Indexed
Rate	1.73%	-
Rate Code	-	CPURNSA
Tenor Code	-	1M
Interpolation Method	-	Linear
Interest Computation	Compound	Simple
Compounding Frequency (n)	Yearly	-

Table 5-36 Inflation Swap for In-leg

Deal Details	Values
Period Start (TS)	18-May-15
Period End (TE)	18-May-16
No. of Days (D) = TE-TS	366
Receive Principal (P)	100,000
Index Value (IT)	1.73%
Receive Interest (RI)	1,734.78

Table 5-37 Inflation Swap for Out-leg

Deal Details	Values
Period Start (TS)	18-May-15
Period End (TE)	18-May-16
No. of Days (D) = TE-TS	366
Pay Principal (P)	100,000
Index Value (IT)	238.772
Pay Interest (PI)	1,007.13
Net Cashflow (RI-PI)	727.65