Market data, market valuation, and pricing of swaps
The fundamental market data used in the valuation includes:
- IBOR rates
- FRA (Forward Rate Agreements)
- Swap values
The specific market data used depends primarily on the currency of the interest rate swap and the duration of the floating rate.
For example, for a SEK interest rate swap with a 3-month floating rate, the following are included: STIBOR, IMM-linked FRAs, and 3YRSWAP-10YRSWAP.
Handling of margin: When restructuring an existing interest rate swap with a margin, it is included in the valuation. If you are pricing an entirely new swap, unfortunately, the margin cannot be filled in.
We always use mid-prices in the valuation and pricing of swaps.
Real-time valuations occur during pricing, restructuring, and valuation of existing swaps.
In historical valuation, such as in the market report, closing mid-price is used. Closing prices are obtained the day after, with the time varying depending on the currency.
Why does the price of my priced swap differ from what is shown on the market page?
If you compare the price shown on the market page for one of the instruments with the price you get when pricing a swap yourself, sometimes there may be a perceived significant difference.
This difference may arise because the swap I am pricing does not have the same terms as the market-priced swap, even if they have the same maturity.
See the example below for a more detailed explanation:
In the above image, we see that the price of the 8YRSWAP is currently 2,395%.
In the image below, I fill in that I want an 8-year swap but get a price of 2.9932%.
This price difference arises because the priced swap does not have the same conditions as the swap pricing on the market page.
To compare these two pricings, we need to specify the same conditions as the market defines a reference swap, baseline from the market as follows:
- I adjust the following for Fixed Interest
- Payment period: Years, instead of quarters
- Day count basis: Act/365, instead of 30/360
The price of this 8-year swap is now 2.395%, the same as the one on the market page for 8YRSWAP.