CMS
CMS is a direct subtype of IRS
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TYPE INCLUSION RELATIONSHIPS
AVAILABLE FUNCTIONS
AVAILABLE CREATE FUNCTION KEYS
TYPICAL OBJECTS OF TYPE CMS
This type represents an interest rate swap widely known as CMS swap or (Constant Maturity Swap swap), which is similar to a Vanilla IRS where the fixed rate in the fixed leg is replaced with a CMS index, the latter being the fair rate of a vanilla swap that has a constant maturity interval.
In other words, a swap rate with a fixed tenor is exchanged against an ibor rate in regular time intervals until the CMS swap's maturity.
The swap rate - i.e. the CMS index - changes over time and its observed value (i.e. fixing) at some specified time on the applicable trading date is used as reference for calculating the CMS swap's cash flow linked to that index.
This swap may be regarded as a special case of IRS with the index of one leg being of type Swap Rate and the index of the other leg being of type Ibor Rate
In formal terms:
Each floating payment associated with the swap rate equals:
NrΔt
where r is the realized value of the swap rate index Swap Rate at the begining of each cms cash flow period.
Further on, N is the entry in Notional and Δt is the length of the respective accrual period.
Each floating payment associated with the ibor rate equals:
N(i+s)Δt
where i is the realized value of the ibor rate index Ibor Rate at the begining of each ibor cash flow period.
Further on, s is the entry in Ibor Spread
The cash flow currency is assumed to be that of the respective index.
The pricing methodology is specified in Model[IRS]