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CallableSwap instrument is not starting the swaption underlying swap at first expiry #255

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noonediesalone opened this issue Jul 12, 2024 · 0 comments
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@noonediesalone
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In the latest release was introduced instrument CallableSwap to replace the package of deals made up of a Swap and a Swaption.
For most of our tests, replacing the package with the instrument works perfect.

One breaking situation is for an Euro call swap, which has on the underlying swap non-standard "features" (e.g. variable spread on the floater) but they stop to manifest after the exercise date.

See one example in this portfolio file, which has 3 trades (Swap + Swaption and CallableSwap).
portfolio.zip

  • The Swap trade has one spread level value (e.g. -19 bps) until the expiry date and then changes the spread level value (e.g. to +3 bps) until the end;
  • The Swaption trade legs starts at the expiry date and note that this way the underlying swap no longer has a "variable spread";
  • The CallableSwap trade has same legs as the Swap trade. But because the floater has "variable spread", the option will be priced differently.

The correct results come from Swap + Swaption package and the expectation is that CallableSwap trade should match that, which is not the case in the example, because the option is supposed to be on the swap that starts at the first exercise date. I think this "truncation" of the swaption underlying legs should take place while building the CallableSwap instrument.

@pcaspers pcaspers self-assigned this Jul 21, 2024
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