Need some tips in order to price a Brazilian floating rate swap leg

[Piter Dias-4]

Guys,

 

Here in Brazil we have something called “CDI cash flow” that is basically a floating rate cash flow with daily resets (CDI is an overnight rate) with no homogenous payment (could periodically, at maturity, tailor made, etc…) where we could apply either “% CDI” to the 1 day forward rates or multiplicative spread.

 

It is something like:

·         Given a CDI Annual Bus/252 rate, a S Annual Bus/252 spread and P a % of CDI

·         Calculate TDI = (1+CDI)^(1/252)-1

·         Calculate s = (1+S)^(1/252)-1

·         Calculate f = (1+TDI*P)*(1+s)

 

So, “f” is an one day rate. In order to forecast the cash flow we multiply all implied “f” from a floating curve and to the same for the historical (all 1 day reset rates). This is the general formula, but usually S = 0 if P <> 100%.

 

I would like to know:

Is QuantLib gearing able to behave the same way as “P” above?

Does QuantLib support multiplicative spread (like S, above) or just additive spread? I could not find a multiplicative spread inspecting some files.

 

Thanks a lot,

 

PS. 1: You can find mode details (if interested) at http://www.debentures.com.br/downloads/textostecnicos/orient_calculo.doc, pages 4 to 6. Google is able to do a pretty good job translating it.

PS. 2: I already checked that QuantLib YieldTermStructure is able to generate one day forward rates with same conventions and interpolation we use here in Brazil. This is already much better than a lot of foreign systems that I already worked with.

 

_______________________

Piter Dias

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[Luigi Ballabio]

On Thu, 2010-09-30 at 23:42 -0300, Piter Dias wrote:

> Here in Brazil we have something called “CDI cash flow” [...] It is
> something like:
>
> ·         Given a CDI Annual Bus/252 rate, a S Annual Bus/252 spread
> and P a % of CDI
>
> ·         Calculate TDI = (1+CDI)^(1/252)-1
>
> ·         Calculate s = (1+S)^(1/252)-1
>
> ·         Calculate f = (1+TDI*P)*(1+s)
>
> Is QuantLib gearing able to behave the same way as “P” above?

No, I don't think so. In the existing coupons, gearing and spread just
work as g*F + s, with F being some fixing.

> Does QuantLib support multiplicative spread (like S, above)?

Same thing.

Luigi


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[Piter Dias-4]

> No, I don't think so. In the existing coupons, gearing and spread just work as g*F + s, with F being some fixing.

It sounds like I have something to do here. As soon as I have something I let you guys know.

Thanks a lot
_______________________
Piter Dias
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Nokia and AT&T present the 2010 Calling All Innovators-North America contest
Create new apps & games for the Nokia N8 for consumers in  U.S. and Canada
$10 million total in prizes - $4M cash, 500 devices, nearly $6M in marketing
Develop with Nokia Qt SDK, Web Runtime, or Java and Publish to Ovi Store
http://p.sf.net/sfu/nokia-dev2dev
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