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FpML-IRD Adjusted/Unadjusted Exercise Date for IRD/CD Options - Follow-up

Title: Adjusted/Unadjusted Exercise Date for IRD/CD Options - Follow-up

This relates to the issue previously described in the attached emails.

<<Adjusted/Unadjusted Exercise Date for IRD/CD Options>> <<Adjusted/Unadjusted Exercise Date for IRD/CD Options>>
Following a recent CD WG call, where this was discussed, please find three proposals:

Proposal One (use existing schema):

Proposal Two (update schema to explicitly support adjusted date):

Proposal Three (ability to specify adjusted date in addition to unadjusted date):

Hope this makes sense.  Any questions/queries, please let me know.  Hopefully this can be discussed again at the next WG meeting.

Thanks

Jamie

--- Begin Message ---
Title: Adjusted/Unadjusted Exercise Date for IRD/CD Options

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







--- End Message ---
--- Begin Message ---
Further to the attached it is worth noting that adjusted dates can already be expressed in the IRD Swaption schema (see swaptionAdjustedDates):

Working together with Harry McAllister, we have been looking to refactor this for 5.0, moving the information held within swaptionAdjustedDates to the cashSettlement and exercise nodes respectively.  We hope to present this work for comment soon.

However, the below shows how the exercise type could look (example shows the EuropeanExercise element but we have similar implementations for American and Bermudan) with the new optional element exerciseEvent.  If this approach is adopted (it doesn't necessarily have to wait for the swaption work as the change is backwardly compatible) it would apply for both Credit and IRD Options.  This would then resolve the issue raised yesterday as we could model both adjusted and unadjusted dates in this construct:

Thanks

Jamie

 

 

 

--- Begin Message ---
Title: Adjusted/Unadjusted Exercise Date for IRD/CD Options

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







--- End Message ---

--- End Message ---

Attachment: fpml-shared-4-5.xsd
Description: fpml-shared-4-5.xsd

Attachment: fpml-shared-4-5.xsd
Description: fpml-shared-4-5.xsd