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Handling New Brazilian Holidays in BRL Swap Accruals

Article Quant Q&A · Author: BigWR
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Summary

The document asks how to adjust Brazilian real interest-rate swap accruals when a newly declared holiday changes the business-day calendar. It describes contract terms under which fixed-leg accruals are unaffected by new holidays while floating-leg accruals are affected, and asks whether changing notional and day count would incorrectly alter both legs.

The answer explains a calendar approach: retain the calendar fixed at trade inception to calculate planned business-day accruals where the instrument’s interest is intended not to change, while using the current calendar to schedule payments and settlements on valid business days. It distinguishes accrual calculation from payment scheduling and notes that conventions depend on instrument documentation. The response is framed as the contributor’s understanding of Brazilian instruments, not a universal rule for every BRL swap; actual treatment must follow the applicable contract terms.

Key ideas

  • The question concerns BRL swap terms where fixed and floating accruals react differently to newly declared holidays.
  • Changing shared notional or day-count inputs could affect both swap legs.
  • The answer proposes preserving an inception-date calendar for accrual calculations that should remain unchanged.
  • A current calendar can still be used to schedule payments and settlements on business days.
  • The applicable swap documentation determines the treatment for a specific contract.

Tags

Fixed incomeDerivatives pricingRisk managementMulti-asset
Full text
# Brazil IR swaps and help with new holiday


# Brazil IR swaps and help with new holiday












Brazil has a pending new holiday that is expected to be official in the next month, for date Nov 20. Existing BRL interest rate swaps contracts have a clause that fixed accruals are not impacted by new holidays, but float accruals are impacted. How do I adjust my BRL swap accrual calculations once the holiday is official? I thought I could just adjust the initial (PV) notional and day count, but that would impact both legs.

## Answer by Dimitri Vulis (score 1)

https://quant.stackexchange.com/a/77768

New non-business days, one-off or annual, appear on various calendars pretty often even in developed markets. Recent examples come to mind: the Queen's funeral in London, the new King's coronation in London, the day of mourning for President George W Bush in 2018 in the U.S., and probably the same for Jimmy Carter any day now.

Fixed income markets have ways of dealing with new non-business days. If a previously scheduled payment or settlement falls on such a day, then it gets rescheduled like any other, according to the term sheet / documentation. If the interest amount is daycounted, then it too as adjusted for a new number of actual days.

But Brazil is special in that the interest of some instruments accrues only on business days. My understanding is that they don't want the interest amounts to change when the calendar changes. For that, you'd need to have two calendars - the one frozen as of the instrument's inception, to calculate the number of days of interest accrual as planned at inception; and also the current calendar still, to schedule coupon payments and settlements on current business days, like in all markets.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.