Factorization of interest rate swap variation

Abstract

Methods are described for processing and clearing derivative products such as interest rate swaps (IRSs). A swap value factor (SVF) may be generated to calculate the mark-to-market value of an IRS. The SVF may be a function of interest rates derived from a yield curve. Cash flow may be generated between the buyer and the seller to reflect the change in the market price of the derivative, i.e., the mark-to-market process. The results of a cleared swap may be used to determine or alter the margin deposit required by the buyer or seller.

1 . A method comprising:
 determining a first discount factor for a financial instrument based on a yield curve, wherein the financial instrument is associated with a start date;   generating, by a processor, a second discount factor for discounting the first discount factor from the start date back to a spot date;   generating a swap value factor based on the second discount factor;   determining a mark-to-market value for the financial instrument based on the swap value factor; and   outputting the mark-to-market value.   
     
     
         2 . The method of  claim 1 , wherein the discounting of the first discount factor is based on an interest rate. 
     
     
         3 . The method of  claim 2 , wherein the interest rate is based on a time interval between the spot date and the start date. 
     
     
         4 . The method of  claim 1 , wherein the swap value factor is based on a sum of coupon value factors. 
     
     
         5 . The method of  claim 4 , wherein each of the coupon value factors is calculated for a corresponding coupon expiration date as a mathematical product of a daycount fraction and a coupon discount factor. 
     
     
         6 . The method of  claim 5 , wherein the daycount fraction is number of days between a coupon start date and the corresponding coupon expiration date divided by 360. 
     
     
         7 . The method of  claim 1 , wherein the interest rate is a daily interest rate. 
     
     
         8 . The method of  claim 1 , wherein the interest rate is based on a fixed rate of an overnight indexed swap. 
     
     
         9 . The method of  claim 3 , wherein the time interval is a number of days between the spot date and the start date. 
     
     
         10 . An apparatus comprising:
 a memory unit; and   a processing unit coupled to the memory unit and configured to cause the apparatus at least to perform:
 determining a first discount factor for a financial instrument based on a yield curve, wherein the financial instrument is associated with a start date; 
 generating a second discount factor for discounting the first discount factor from the start date back to a spot date; 
 generating a swap value factor based on the second discount factor; 
 determining a mark-to-market value for the financial instrument based on the swap value factor; and 
 outputting the mark-to-market value. 
   
     
     
         11 . The apparatus of  claim 10 , wherein the discounting of the first discount factor is based on an interest rate. 
     
     
         12 . The apparatus of  claim 11 , wherein the interest rate is based on a time interval between the spot date and the start date. 
     
     
         13 . The apparatus of  claim 10 , wherein the swap value factor is based on a sum of coupon value factors. 
     
     
         14 . The apparatus of  claim 13 , wherein each of the coupon value factors is calculated for a corresponding coupon expiration date as a mathematical product of a daycount fraction and a coupon discount factor. 
     
     
         15 . The apparatus of  claim 14 , wherein the daycount fraction is number of days between a coupon start date and the corresponding coupon expiration date divided by 360. 
     
     
         16 . A memory containing computer-executable instructions for causing a computer device at least to perform:
 determining a first discount factor for a financial instrument based on a yield curve, wherein the financial instrument is associated with a start date;   generating a second discount factor for discounting the first discount factor from the start date back to a spot date;   generating a swap value factor based on the second discount factor;   determining a mark-to-market value for the financial instrument based on the swap value factor; and   outputting the mark-to-market value.   
     
     
         17 . The memory of  claim 16 , wherein the discounting of the first discount factor is based on an interest rate. 
     
     
         18 . The memory of  claim 17 , wherein the interest rate is based on a time interval between the spot date and the start date. 
     
     
         19 . The memory of  claim 16 , wherein the swap value factor is based on a sum of coupon value factors. 
     
     
         20 . The memory of  claim 19 , wherein each of the coupon value factors is calculated for a corresponding coupon expiration date as a mathematical product of a daycount fraction and a coupon discount factor.