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
- 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)
- 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 |
Parent topic: Inflation Swap Processing