Module asset_swap 

The asset swap: a reference bond packaged with a floating leg, quoted as a spread over the risk-free curve.

Buy a bond and swap its fixed coupons into floating, and what is left is floating plus a spread — the asset-swap spread, how a credit desk quotes a bond against the swap curve. Two conventions share one numerator and differ only in the notional N_f the floating leg runs on:

• par-par: the buyer pays par whatever the bond’s price, and the premium or discount is amortised through the spread on the full notional;
• proceeds: the floating leg runs on the cash proceeds, P_dirty·N.

The package settles on its own start, not on the bond’s issue. That is when the dirty price changes hands and when the floating leg begins, and for a bond already in issue — the usual case — the two dates are years apart. To the buyer it is worth

s·A + I − PV_bond + P_dirty·N·DF(start)

where A is the spread annuity on N_f, and I = N_f·(Σ τ·F·DF + DF(end) − DF(start)) is the floating leg’s index part with its notional exchanges. PV_bond is the bond’s flows paid after start, on the risk-free curve of its currency. It is never an issuer-spread curve, which would conflate two definitions of “spread over risk-free”. On one curve I telescopes to zero. Against a projection curve that is not the discount curve it does not, and the basis between the two lands in the spread. The traded dirty price and the spread are contract terms: the package prices at them, and the par spread is the one that zeroes it. The package is linear in the spread, so the par spread is read off in closed form rather than solved.

Structs

AssetSwap

An asset swap package: a bullet bond, a floating leg on an index, the traded dirty price and spread, the date it settles, and the side.

CrossCurrencyAssetSwap

A cross-currency asset swap: a bond in one currency packaged with a floating leg in another at a contract FX rate. Par-par, the buyer pays par in the floating currency, N_Y = N·fx_rate, against the bond’s dirty proceeds converted at the same rate; on proceeds the floating leg runs on the converted proceeds, N_Y = P_dirty·N·fx_rate, so the exchanges at the start cancel and the proceeds come back at the end. Either way the buyer pays the bond’s flows away in its own currency and receives floating plus the spread on N_Y. To the buyer, in the floating currency,

Enums

AssetSwapError

An asset swap that cannot be built.

AssetSwapKind

Which asset-swap convention the package is struck under.

CrossCurrencyAssetSwapError

A cross-currency asset swap that cannot be built.