EXTENDABLE CURRENCY SWAP VALUATION PROCEDURE

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1. Log into your account or if you are a new user, register your account and enable two factor authentication.
2. Click on the [Extendable currency swap] button, this will take you to the Dynamic-text-blocks parameters page.

Dynamic text-blocks parameters page

1. Select to enter flat or time-varying domestic yield curve at indicated times.
2. Select to enter flat or time-varying foreign yield curve at indicated times.
3. Select to enter flat or time-varying domestic notional principal at indicated payment times.
4. Select to enter flat or time-varying foreign notional principal at indicated payment times.
5. Enter number of outstanding payment times for unextended swap. The unextended swap is the swap assuming no right to extend. The right to extend is assumed to be exercised at expiry time of the unextended swap.
6. Enter number of outstanding swap payment times just after the right to extend is exercised. If the number of outstanding payment times for unextended swap is U, and the number of further payment times after extension is E, the value you must enter in this section is E not U+E.
7. Enter the time till next swap payment in years.
8. Enter swap payment frequency per year.
9. Click the submit button, and this will take you to the array populating page.

Array populating page

1. Enter domestic zero rates convertible swap-payment-frequency times per year at indicated times.
2. Enter foreign zero rates convertible swap-payment-frequency times per year at indicated times.
3. Enter domestic notional principals at indicated payment times.
4. Enter foreign notional principals at indicated payment times.
5. Click the submit button, and this will take you to the Fixed-for-fixed currency swap valuation parameters page.

Extendable currency swap valuation parameters page

1. The extendable swap valuation is done by using its equivalence with exchanging domestic bond cashflows for foreign bond cashflows. The volatilities of both forward domestic bond and forward foreign bond are claculated by multiplying their respective annualised forward yield volatilities by their respective modified durations at unextended swap maturity time assuming the right to extend has been exercised. These are used in the valuation of the option to extend, which is valued as an exchange option. The extended bond is the bond that consists of coupons of the unextended swap plus the outstanding coupons after the right to extend is exercised. That is the reason for references to domestic and foreign bond parameters in this section and in database records.
2. Enter the name of domestic currency of valuation.
3. Enter the name of foreign currency of valuation.
4. Enter the fixed domestic coupon rate convertible swap-payment-frequency times per year.
5. Enter the fixed foreign coupon rate convertible swap-payment-frequency times per year.
6. Enter the spot-exchange-rate domestic currency units per unit of foreign currency.
7. Enter the annualised domestic bond forward yield volatility at expiry of unextended swap.
8. Enter the annualised foreign bond forward yield volatility at expiry of unextended swap.
9. Enter the annualised forward exchange rate volatility at expiry of unextended swap.
10. Enter the correlation between exchange rate and foreign bond price.
11. Enter the correlation between the domestic bond and the product of exchange rate and foreign bond price. If the forward domestic bond price is represented by D, the forward exchange rate is represented by S, and the forward bond price is represented by F, the correlation referred in this section is between D and S*F.
12. Enter allocated expenses and tax to be adjusted on pure swap price.
13. Enter the monetary value of the profit charge to be adjusted on pure swap price. If the pure swap value to the foreign rate receiver is s_v, and dealing expenses and tax charge is s_et, and the profit charge is s_pt, the final swap value is calculated as P = s_v - s_et - s_pt. It is important to note that valuation is done from a dealer/broker's perspective. The profit-charge is charged by the dealer/broker.
14. Click the submit button and this will take you to the output display page.

Output display page

1. You can view pricing model output together with input parameters you entered.
2. The output display pattern varies depending on whether flat, or time-varying notional principal values are chosen. The first choice uses bond valuation techniques to value the swap while the latter uses portfolio of forward contracts valuation techniques to value the swap.
3. At the bottom of the page you can click on the button to create database record for the current model output. This will take you to the create database record page where you should click on the create button to create the database record.
4. After clicking on the create button to create the database record, you will be taken to the database records view page, where you can scroll vertically or horizontally to view database records including the one you just created.
5. You can filter database records according to the currency of valuation using the filter box. You can click on the details link on the extreme right of a particular database record, this will take you to the particular database record details page.