IRDWG, CDWG,
There has been a recent change to the ISDA definitions for Interest Rate Options. Published on April 14, 2008 it amended the 2006 definitions to specify the expiration business day convention as Preceding (instead of Following).
This change should apply for IR Swaptions, but is not applicable to Credit Swaptions/Index Options which are also covered by these definitions.
To workaround this issue internally, and override the new provisions for Credit, our drafting team would like us to flow the adjusted date within our FpML documents (within the appropriate exercise node - American, Bermudan or European). We could do this by setting the businessDayConvention to 'NONE' for the unadjusted date:
<exercise>
<europeanExercise>
<expirationDate>
<adjustableDate>
<unadjustedDate>2008-08-20</unadjustedDate>
<dateAdjustments>
<businessDayConvention>NONE</businessDayConvention>
</dateAdjustments>
</adjustableDate>
</expirationDate>
...
</europeanExercise>
</exercise>
However, for clarity, it may be desirable to use a dedicated adjusted date element for this purpose. Additionally, for the Credit products in particular, we would probably still need to send the unadjusted dates for matching purposes at DTCC. So rather than specifying an adjusted date instead of unadjusted date, it may be preferable to have the ability to specify BOTH (with the proviso that the adjusted date = unadjusted date + date adjustments).
<exercise>
<europeanExercise>
<expirationDate>
<adjustableDate>
<unadjustedDate>2008-08-20</unadjustedDate>
<dateAdjustments>
<businessDayConvention>FOLLOWING</businessDayConvention>
<businessCenters>
<businessCenter>GBLO</businessCenter>
</businessCenters>
</dateAdjustments>
</adjustableDate>
</expirationDate>
...
<!-- New Mechanism to model adjusted date(s) goes here -->
</europeanExercise>
</exercise>
Has anyone else come across this particular issue? Does it make sense to explore the possibility of extending our exercise types to handle the above? Realise that these elements have more than one usage and any change should take this into account.
Would appreciate any feedback on this.
Many Thanks
Jamie