Conversion of over-the-counter swaps to standardized forward swaps

Abstract

Systems, processes and methods are described for converting over-the-counter derivative products such as interest rate swaps (IRSs) to standardized forward swaps, such as centrally cleared interest rate swaps. The value of each leg of the over-the counter swap may be determined and compared to a value of a corresponding leg of the forward swap. A mark-to-market value may be determined as the difference between the values.

We claim: 
     
         1 . A computing device for converting an over-the-counter swap associated with a fixed rate and a floating rate to a forward swap, the computing device comprising:
 a memory configured to store a spot rate associated with an over-the-counter swap and a spot rate associated with a forward swap; and   a processor configured to calculate a spot rate estimate between the spot rate associated with the over-the-counter swap and the spot rate associated with the forward swap and configured to determine a cash flow difference between a market value based on the spot rate estimate and a market value based on a fixed rate.   
     
     
         2 . The computing device of  claim 1 , wherein the processor is configured to determine a spot payout based on the spot rate estimate and a notional amount. 
     
     
         3 . The computing device of  claim 1 , wherein the processor is configured to calculate a market value associated with over-the-counter swap payments. 
     
     
         4 . The computing device of  claim 1 , where the spot rate estimate is based on an agreed upon rate. 
     
     
         5 . The computing device of  claim 1 , wherein the spot rate estimate is based on two or more known spot rates. 
     
     
         6 . The computing device of  claim 1 , wherein the spot rate estimate is based on a swap rate curve. 
     
     
         7 . The computing device of  claim 1 , wherein the over-the-counter swap has a first maturity and the forward swap has a second maturity different from the first maturity. 
     
     
         8 . The computing device of  claim 1 , wherein each of the over-the-counter swap and the forward swap is a International Monetary Market dated swap. 
     
     
         9 . A non-transitory computer readable medium storing instructions, which when executed, perform a method for converting an over-the-counter swap having a fixed rate leg and a floating rate leg to a forward swap, the method comprising:
 determining, using a processor, a value of a coupon to be received on an agreed-upon start date for the over-the-counter swap;   discounting the value of the coupon to a spot date;   determining a cash flow as a difference between the fixed rate leg and the floating rate leg applied from a last coupon date to a next spot coupon agreed-upon date; and   calculating a mark-to-market for converting the over-the-counter spot swap to an equivalent forward swap according to at least the value of the coupon and a value of the floating rate leg.   
     
     
         10 . The non-transitory computer readable medium of  claim 9 , wherein determining the cash flow is based on an agreed upon rate floating rate. 
     
     
         11 . The non-transitory computer readable medium of  claim 9 , wherein determining the cash flow includes estimating a spot rate based on two or more known spot rates. 
     
     
         12 . The non-transitory computer readable medium of  claim 11 , wherein estimating the spot rate includes estimating the swap rate based on a swap rate curve. 
     
     
         13 . The non-transitory computer readable medium of  claim 9 , wherein the over-the-counter swap has a first maturity and the forward swap has a second maturity different from the first maturity. 
     
     
         14 . The non-transitory computer readable medium of  claim 9 , wherein the mark-to-market for converting the over-the-counter spot swap to the equivalent forward swap is further based on a value of remaining coupons on the fixed rate leg. 
     
     
         15 . The non-transitory computer readable medium of  claim 9 , wherein the value of the floating leg is discounted back to present value. 
     
     
         16 . A computing device for converting an over-the-counter swap having a first leg and a second leg to a forward swap, the computing device configured to execute instructions comprising:
 a first module configured to determine a payout to be received on a start date of an over-the-counter swap and discount the payout to a spot date;   a second module configured to determine a cash flow as a difference between the first leg and the second leg applied from a last payout date to the next payout date;   a third module configured to calculate a market value of the first leg;   a fourth module configured to calculate a market value of a forward swap having discounted to the start date; and   a fifth module configured to calculate a mark-to-market for converting the over-the-counter spot swap to the forward swap as a function of the payout and the market value of the forward swap.   
     
     
         17 . The computing device of  claim 16 , wherein the second module is configured to determine the cash flow is based on an agreed upon rate floating rate. 
     
     
         18 . The computing device of  claim 16 , wherein the second module is configured to estimate a spot rate based on two or more known spot rates. 
     
     
         19 . The computing device of  claim 16 , wherein the second module is configured to estimate the swap rate based on a swap rate curve. 
     
     
         20 . The computing device of  claim 16 , wherein the over-the-counter swap has a first maturity and the forward swap has a second maturity different from the first maturity.