Valuation of derivative products
Disclosed are a method, apparatus, and computer-readable medium for determining the value of a derivative product over nonconsecutive periods. The derivative product may be an interest rate swap product, which, when exchanged traded, normally is valued on a mark-to-market basis over consecutive periods. The product may be valued using swap value factors and settlement values according to the methodology disclosed herein.
1. A method for determining a value of an exchange-traded interest rate swap product over sequential but nonconsecutive periods, the method comprising aggregating, by a processor, a series of calculated mark-to-market values from a start of a period at which the product is onset to an end of the period, the calculation employing swap value factors, each swap value factor being a sum of coupon value factors, the calculation being performed in accordance with the following equation:
V
(
n
)
=
K
*
[
(
(
S
V
1
-
OV
)
*
S
V
F
1
)
+
∑
i
=
2
n
(
S
V
i
-
S
V
i
-
1
)
*
S
V
F
i
]
wherein K represents the notional value of the derivative, SV 2 through SV n-1 represent the settlement values at the end of the relevant period and wherein one or more SV i values may be adjusted in a sequential calculation, wherein OV represents the initial trade price, wherein SV n represents the end of period settlement values if not offset before the end of period n and wherein SV n represents the offset trade price if offset before the end of period n, and wherein SVF 1 -SVF n represent swap value factors over the periods.
2. A method according to claim 1 , said interest rate swap product being a dollar-denominated product.
3. A method according to claim 1 , said interest rate swap product being a Euro-denominated product.
4. A method according to claim 1 , said interest rate swap product being offset at the end of the period.
5. A method comprising:
for an exchange-traded mark-to-market derivative product having a variable tick rate, determining, by a processor, a valuation for said product at a time T n relative to an earlier time T 1 , T n and T 1 being nonconsecutive market periods, wherein the valuation is based on at least one pair of settlement values from consecutive market periods between time T 1 and T n .
6. A method according to claim 5 , said derivative product comprising an interest rate swap product.
7. A method according to claim 6 , comprising calculating the valuation for said interest rate swap product using a swap value factor.
8. A method according to claim 7 , wherein the swap value factor is a sum of coupon value factors.
9. A method according to claim 8 , wherein each coupon value factor is calculated for a coupon expiration date as a product of daycount fraction and swap discount factor.
10. A method according to claim 7 , comprising calculating the valuation of said swap product according to the following equation:
V
(
n
)
=
K
*
[
(
(
S
V
1
-
OV
)
*
S
V
F
1
)
+
∑
i
=
2
n
(
S
V
i
-
S
V
i
-
1
)
*
S
V
F
i
]
wherein K represents the notional value of the derivative, SV 2 through SV n-1 represent the settlement values at the end of the relevant period and wherein one or more SV i values may be adjusted in a sequential calculation, wherein OV represents the initial trade price, wherein SV n represents the end of period settlement values if not offset before the end of period n and wherein SV n represents the offset trade price if offset before the end of period n, and wherein SVF 1 -SVF n represent swap value factors over the periods.
11. An apparatus comprising a display, a memory unit storing computer executable instructions, and a processing unit coupled to the memory unit and configured to process the instructions to cause the apparatus at least to perform:
for an exchange-traded mark-to-market derivative product having a variable tick rate, determining a valuation for said product at a time T n relative to an earlier time T 1 , T n and T 1 being nonconsecutive market periods, wherein the valuation is based on at least one pair of settlement values from consecutive market periods between time T 1 and T n .
12. An apparatus according to claim 11 , said derivative product comprising an interest rate swap product.
13. An apparatus according to claim 12 , said processor configured to calculate the valuation for said interest rate swap product using a swap value factor.
14. An apparatus according to claim 13 , wherein the swap value factor is a sum of coupon value factors.
15. An apparatus according to claim 14 , wherein each coupon value factor is calculated for a coupon expiration date as a product of daycount fraction and swap discount factor.
16. An apparatus according to claim 13 , said processor configured to calculate the valuation of said swap product according to the following equation:
V
(
n
)
=
K
*
[
(
(
S
V
1
-
OV
)
*
S
V
F
1
)
+
∑
i
=
2
n
(
S
V
i
-
S
V
i
-
1
)
*
S
V
F
i
]
wherein K represents the notional value of the derivative, SV 2 through SV n-1 represent the settlement values at the end of the relevant period and wherein one or more SV i values may be adjusted in a sequential calculation, wherein OV represents the initial trade price, wherein SV n represents the end of period settlement values if not offset before the end of period n and wherein SV n represents the offset trade price if offset before the end of period n, and wherein SVF 1 -SVF n represent swap value factors over the periods.
17. A tangible computer-readable medium containing computer-executable instructions for causing a computing device to perform steps comprising:
for an exchange-traded mark-to-market derivative product having a variable tick rate, determining a valuation for said product at a time T n relative to an earlier time T 1 , T n and T 1 being nonconsecutive market periods, wherein the valuation is based on at least one pair of settlement values from consecutive market periods between time T 1 and T n .
18. A computer-readable medium according to claim 17 , said derivative product comprising an interest rate swap product.
19. A computer-readable medium according to claim 18 , said instructions, when executed, cause the apparatus to calculate the valuation using a swap value factor.
20. A computer-readable medium according to claim 19 , wherein the swap value factor is a sum of coupon value factors.
21. A computer-readable medium according to claim 20 , wherein each coupon value factor is calculated for a coupon expiration date as a product of daycount fraction and swap discount factor.
22. A computer-readable medium according to claim 19 , said instructions configured to calculate the valuation of said swap product according to the following equation:
V
(
n
)
=
K
*
[
(
(
S
V
1
-
OV
)
*
S
V
F
1
)
+
∑
i
=
2
n
(
S
V
i
-
S
V
i
-
1
)
*
S
V
F
i
]
wherein K represents the notional value of the derivative, SV 2 through SV n-1 represent the settlement values at the end of the relevant period and wherein one or more SV i values may be adjusted in a sequential calculation, wherein OV represents the initial trade price, wherein SV n represents the end of period settlement values if not offset before the end of period n and wherein SV n represents the offset trade price if offset before the end of period n, and wherein SVF 1 -SVF n represent swap value factors over the periods.