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Brazilian Swap Pricing with FINCAD Analytics Suite

In FINCAD Analytics Suite, functions are available to price Brazilian Pre-DI (Deposito Interbancario) swaps. In a Pre-DI swap the floating rate is the average one day interbank deposit rate. This rate is known as the CDI or overnight DI rate. This rate is annualized and is calculated daily by the Center for Custody and Financial Settlement of Securities (CETIP).

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Details

The Brazilian swap has only one payment which occurs at maturity and pricing is done using the CDI rate.

The fixed leg notional accretes daily from the effective date as:

where

  • t = the time,
  • N = the initial notional,
  • κ = the fixed rate, and
  • n = the number business days between the effective date and the time t .

Similarly, the floating leg accumulates daily accruals from the effective date as:

where

  • ri = CDI rate at date i .

The CDI rate is an annualized rate (R) paying:


Functions

In FINCAD Analytics Suite, pricing and cashflow functions exist to price Pre-DI swaps. The outputs of the pricing functions not only include fair value and accrual value but also par rates / spreads, days outstanding and elapsed, and various risk stats including basis point value, duration and convexity. The results can be outputted for each individual leg, for the swap or for all 3 at once.

For the cashflow functions, various table outputs can be displayed which would include reset information, fix and float leg accruals and implied rates.

Related items

Many clients who are buying or selling Brazilian swaps also deal with Brazilian bonds, FINCAD Analytics Suite has functions to price Brazilian bonds. The functions are aaBond4_* and contains pricing and cashflow functions along with allowing the user to choose whether they want to price from yield or a curve. This function will also calculate coupons based on the act/252 business day convention.

Source:

(1) "Market Focus: Use of Derivatives in Brazil." Bank of America, August 6, 2002.