1FWCV Forward Analysis Matching Output INTRODUCTION........................................................................................................................................ 2 SWDF SOURCE ......................................................................................................................................... 2 USE CASE 1: SHORT END SWAPS .............................................................................................................. 3 FWCV: HORIZON CURVE – SWAP CONVENTIONS .............................................................................................. 4 FWCV OLD – SWAP CONVENTIONS.................................................................................................................... 4 ICVS: CURVE HORIZON – SWAP CONVENTIONS ................................................................................................. 5 SWPM – SWAP CONVENTIONS .......................................................................................................................... 5 FWCV: IMPLIED FORWARDS - CASH CONVENTIONS .......................................................................................... 6 FWCV OLD - CASH CONVENTIONS ..................................................................................................................... 6 ICVS: FORWARD ANALYSIS - CASH CONVENTIONS ............................................................................................ 7 SWPM - CASH CONVENTIONS ........................................................................................................................... 7 USE CASE 2: LONG ENDED SWAPS ............................................................................................................ 8 FWCV: HORIZON CURVE .............................................................................................................................. 8 FWCV OLD ................................................................................................................................................... 9 FWCV: IMPLIED FORWARDS ...................................................................................................................... 10 SWPM ........................................................................................................................................................ 10 ICVS: FORWARD ANALYSIS ........................................................................................................................ 11 ICVS: CURVE HORIZON ............................................................................................................................... 11 In SWDF make sure the applicable swap curve is sourced this way. . The former is based on the conventions of the underlying curve objects meanwhile the latter is based on generating forward “swap” rates hence using swap conventions only. SWPM and ICVS based on two use cases (short end and long end).2 Introduction FWCV was recently revamped as part of Bloomberg NEXT with the goal of providing a more user friendly UI and at the same time providing more functionality and flexibility than the previous version. Additional consideration for short end projections Short ended swaps typically have different conventions then the cash rates used on the short end of Interest rate curves and as a result Forward Analysis follows different assumptions than Horizon Analysis. To help illustrate backward compatibility of FWCV and also the particular nuances of short ended projections we show output generated by FWCV against FWCV OLD. SWPM provides the additional benefit of being able to see the underlying cash-flows in reference to the projected rates in FWCV. FWCV OLD only supports swap curves in SOURCE 1. SWDF Source If goal is to match the values in FWCV to FWCV OLD we need to ensure the same inputs are being used along with the same conventions. 3 Use Case 1: Short End Swaps Currency: USD Fixed Float Float Leg Reference Index: LIBOR 3months Pay freq: Zero Coupon Effective Date: 1 month from today (today being April 12. 2012) Maturity: 6 months from Effective date Swap curve #23 MID values Contributor Source: CMPN Compound Frequency: o o Semi-annual for swap convention No compounding for Cash conventions Day count: o o 30I360 for swap conventions ACT360 for cash convention . 9014 . This approach is consistent with the Curve Horizons tab within SWPM. Settings: o Rate Type: Zero Rate Result: .9014 FWCV OLD – Swap Conventions Settings: o o Day Type: 30 360 Coupon/Spot: Spot (zero coupon) Result: .4 FWCV: HORIZON CURVE – Swap Conventions Horizon Curve always displays Projected rates (zero and Par Swap) based on swap conventions. 9014 SWPM – Swap Conventions Settings: o o SWPM 1MOX6MO C04/16/2012 –ZER0 Change effective and maturity dates Result: .5 ICVS: CURVE HORIZON – Swap Conventions Settings: o View: Spot Rates Result: .9014) .0901378 (approx . 8818 FWCV OLD .Cash Conventions Settings: o o Day Type: ACT 360 Coupon/Spot: Spot (zero coupon) Result: .6 FWCV: IMPLIED FORWARDS .Cash Conventions Settings: o o Interval: 1 month Tenor: 6 month Result: .8818 . Cash Conventions Settings: o o Interval: 1 month Tenor: 6 month Result: .8818) .881739 (approx .Cash Conventions o o o SWPM 1MOX6MO C04/16/2012 –ZER0 Change effective and maturity dates Day count ACT360 Result: .7 ICVS: FORWARD ANALYSIS .8818 SWPM . 2012) Maturity: 4 years from start/effective date Applicable Bloomberg swap curve #23 MID values Contributor Source: CMPN Compound Frequency: o Semi-annual for swap convention Day count: o 30I360 for swap conventions Note: No convention nuance like we have for short ended swaps FWCV: HORIZON CURVE Result: 2.8 Use Case 2: Long Ended Swaps USD Fixed Float Float Leg Reference Index: LIBOR 3months Pay freq: Zero Coupon Effective Date: 3 years from today(today being April 12.4264 . 4264 .9 FWCV OLD Result: 2. 2.426352 (approx.4264 SWPM SWPM USD 3YX4Y –ZERO C04/12/2012 Change Effective date to 4/16/2015 and Maturity to 4/16/2019 Result: 2.10 FWCV: IMPLIED FORWARDS Result: 2.4264 ) . 4264 .11 ICVS: FORWARD ANALYSIS Result: 2.4264 ICVS: CURVE HORIZON Result: 2.