INTEREST RATE MODELLING AND PUTTABLE SWAP VALUATION PROCEDURE



Financial solutions home page

  1. Log into your account or if you are a new user, register your account and enable two factor authentication.
  2. Click on the [Puttable swap valuation] 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 yield curve at indicated times.
  2. Enter number of outstanding payment coupons.
  3. Enter coupon payment frequency per year.
  4. Enter the time till next coupon payment in years.
  5. Click the submit button, and this will take you to the array populating page.

Array populating page

  1. Enter continuously compounded zero rates at indicated times.
  2. Click the submit button, and this will take you to the Puttable swap valuation parameters page.

Puttable swap valuation parameters page

  1. Enter the name of reference entity.
  2. Select the name of currency of valuation from the drop-down list.
  3. Enter the fixed swap rate.
  4. Enter the swap's notional principal.
  5. If prompted enter the observed floating rate payable on next payment time.
  6. Enter the puttable swap's vesting period in years. This is the period, starting from current time, over which the swap cannot be cancelled.
  7. Enter annualised short-rate volatility parameter. This is the volatility of the short rate used to model the future evolution of the short-rate process under the Hull-White or Extended Vasicek model. It must be calibrated together with the reversion rate so that they are market-consistent.
  8. Enter reversion-rate . This is the reversion parameter of the short rate used to model the future evolution of the short-rate process under the Hull-White or Extended Vasicek model. It must be calibrated together with the volatility paramenter so that they are market-consistent.
  9. Enter allocated expenses and tax to be adjusted on puttable swap price.
  10. Enter the monetary value of profit charge to be adjusted on puttable swap price. If the pure puttable swap value is s_v, and dealing expenses and tax charge is s_et, and the profit charge is s_pt, the final puttable 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.
  11. 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. 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.
  3. 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.
  4. 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.