How a Spreadlock Sets a Forward Swap Spread

Summary

The exchange defines a spreadlock as an agreement to buy or sell a swap spread on a specified future date. It illustrates the contract with a forward-starting interest rate swap: the buyer agrees to a fixed rate set at a stated spread over the then-prevailing Treasury yield, while receiving Libor. The spread is therefore locked in ahead of the swap’s start, even though the reference Treasury yield is determined later.

The question also asks about pricing a spreadlock forward swap and a related swaption, particularly how to calculate a forward bond yield under a swap or swaption risk-neutral measure. The reply does not provide a pricing model, papers, or assumptions for valuing either product. Its example clarifies the basic contract payoff setup, but it is not a valuation method and leaves the measure choice and yield modeling unresolved.

Key ideas

• A spreadlock fixes a swap spread for a specified future date.
• The example links a forward-starting swap’s fixed rate to a Treasury yield plus the locked spread.
• The exchange does not provide a pricing framework for spreadlock swaptions or forward yields.

Tags

# Spreadlock derivatives


# Spreadlock derivatives












I would like to price a spreadlock forward swap and a spreadlock swaption but I don't find in the web any research article. Would you please provide me with some freely accessible papers on the web ? If not could someone help by exposing models and the key assumptions to price such products ?

My issue is how to calculate forward bond yield under swap/swaption natural risk neutral measure.

## Answer by dm63 (score 2)

https://quant.stackexchange.com/a/41562

I'm not familiar with the terms "spreadlock forward swap " and "spreadlock swaption". A "spreadlock" is an agreement to buy or sell swap spreads on a specific forward date. For example, if you buy a spreadlock on the 5yr for Nov 18 2018 at 14 it means you will enter a 5yr interest rate swap starting 2 business days after nov 18 2018 where you will pay a fixed rate equal to 14bp over the then prevailing 5yr Treasury yield, versus receiving Libor.

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