Swap Spread Rate


Swap Spread Rate is a direct subtype of Interest Rate
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with functions Swap Spread Rate Functions, keys Swap Spread Rate keys and example object SwapSprdRt

TYPE INCLUSION RELATIONSHIPS

Interest Rate

Swap Spread Rate

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AVAILABLE FUNCTIONS

Create

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AVAILABLE CREATE FUNCTION KEYS

Gearing 1

Gearing 2

Index 1

Index 2

Name

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TYPICAL OBJECTS OF TYPE Swap Spread Rate

SwapSprdRt

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This type represents a rate R, the quoted value of which at any given time equals the weighted sum of two predefined swap rates.
The formal definition is:
R := g₁r₁ + g₂r₂
where r₁, r₂ are the observed values of the two given reference swap rates and g₁, g₂ are the corresponding gearings, i.e. constant numerical coefficients.
It is referred to as "spread" because the default gearing settings are g₁ = 1 and g₂ = -1

Note:
Same sign gearings may result in infinite option prices in the context of a lognormal vol. In that case, it is advisable to use a normal vol setting.