Indexed Coupon


Key Indexed Coupon in
Vanilla IRS refers to an optional boolean that affects the last date of the spanning time interval that defines the ibor rate at each period of the floating leg.
Note, the spanning time interval may differ from the time interval over which the ibor rate accrues the interest amount that is eventually paid in association with the respective period.

Formally, the floating leg consists of N consecutive accrual intervals defined by the N + 1 time points T⁰, T¹, T², ..., Tᴺ
These are the intervals [T⁰,T¹] , [T¹,T²] , [Tᴺ⁻¹,Tᴺ]
To these accrual intervals correspond the N ibor rates r¹, r², ..., rᴺ
So, the rate accrues over the interval [T⁰,T¹], the rate over the interval [T¹,T²], etc.
Each rate is usually fixed a few business days before the onset of its corresponding accrual interval and defined by its spanning interval which may differ from the accrual interval.

If the setting of the boolean here is FALSE, the length of the spanning interval is either equal or very close to that of the accrual interval.
In fact, if the entry
Fixing Days of the index does not overwrite the default number of fixing days that is equal to the ibor rate's intrinsic settlement delay, not only the length, but also the dates of the spanning interval coincide with the dates of the accrual interval.
The later case is what is also known as "par" rates and allows the usage of the forward rates in the valuation of the swap's PV without the need of conexity afjustments.

If the setting of the boolean here is TRUE, the spanning interval is constructed solely from the ibor rate's conentions and may therefore differ from the accrual interval.

If omitted, the default is TRUE