Re: clean market value of a vanilla swap

Posted by kevinwang on Apr 09, 2009; 2:11pm
URL: http://quantlib.414.s1.nabble.com/clean-market-value-of-a-vanilla-swap-tp7273p7275.html

Hi, Nando, thanks for your reply. sorry if i did not make it clear. when we price a swap, shall we price it to the clean market value?

Let us say we need to price a vanilla swap mark to market. it is a 5 year swap with notional of 100mm in USD. the fixed leg is 2.456%, semi-annual, the floating leg is 3month libor, quarterly.

the trade setttlement date was January 1st, 2009.  
Valuation Date is today: Apr 9th,
so the market value = total discounted cash flow = NPV = 90,968,492.  

but

for the fixed leg, from the time period of about 98 days between settlement date Jan 1st, 2009 to the valuation date Apr 9th, 2009, these is an accrued amount of 100mm * 2.456% * 98/360

for the fixed leg, from the time period of 8 days between last coupon date apr 1st, 2009 to the valuation date Apr 9th, 2009, these is an accrued amount of 100mm * the fixing rate * 8/360

I think we need to deduct the accrued amount from the NPV to get the clean market value so that we can calculate the price of the swap as 1- clean_market_value/ notional.   this seems to be what Bloomberg does...

Thanks

Ferdinando Ametrano-4 wrote

On Wed, Apr 8, 2009 at 10:26 PM, kevinwang <[e-mail]> wrote:
> I think the NPV() method on vanilla swaps returns the market value/net
> prevent value of both legs of the swap
right

> including the pricipals and accrued
> interests. How can i get the clean market value ( principal) alone? it
> should just be NPV()- accured interest.

even if I can probably guess what you mean, I must confess this is my
first time ever I read about "accrued interest" for a swap, and I've
been working quite a few years on a swap desk. From which need your
question originates? Chances are there might be a more natural way to
achieve what you need.

ciao -- Nando

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