Setting Swap Coupon Frequency and Limits of Single-Curve Pricing

Summary

The document asks how to set the fixed-leg payment frequency when pricing an interest rate swap in MATLAB. The accepted response identifies a reset-frequency name-value setting as the relevant parameter, rather than the period option used in a bond-pricing function. This addresses the practical API question for requesting semiannual or quarterly coupon schedules.

A second response describes a workaround for tools that cannot set the desired frequency: adjust the value of an annual fixed-leg swap by replacing the value of an annual-coupon fixed bond with a bond paying at the target frequency. The answer is framed for a payer swap and does not provide a worked valuation or demonstrate the workaround. It also cautions that the cited function may not support realistic multi-curve valuation, including overnight-index-swap discounting for collateralized derivatives. The discussion therefore helps with frequency configuration while leaving broader curve-model suitability to be checked.

Key ideas

• Swap coupon or reset frequency is specified through a leg reset setting in the cited MATLAB function.
• Bond-pricing period options do not necessarily apply to swap-pricing functions.
• A bond-value adjustment is offered as a workaround when direct frequency control is unavailable.
• The workaround is described for a payer swap and is not supported by a worked example.
• Single-curve tools may be inadequate for collateralized swap valuation under multi-curve frameworks.

Tags

# Matlab; How to specify Coupon frequency for Interest Rate Swap


# Matlab; How to specify Coupon frequency for Interest Rate Swap












I'm trying to price an interest rate swap and would like to change the default coupon payment frequency from 1 a year to 2 or 4 a year. I'm using

```
Price = swapbyzero(RateSpec, LegRate, i, Maturity, 'Principal', Principal);
```

and tried

```
Price = swapbyzero(RateSpec, LegRate, i, Maturity, 'Principal', Principal,'Period',2);
```

where 'Period' is a valid option when pricing bond using

```
prbyzero
```

I'm using matlab 2013a

## Answer by Karusmeister (score 0, accepted)

https://quant.stackexchange.com/a/8086

Name-Value pair option 'LegReset' [n n] where n is the frequency

## Answer by Christian Fries (score 1)

https://quant.stackexchange.com/a/8085

I don't know what is supported by MatLab (I use Java to do such stuff :-).

But in case you do not find a solution from the swapbyzero function you mentioned I can suggest a workaround:

- Value a swap with the annual fix frequence.

Given that it is a payer swap (pays the fixed leg), correct the value by:

- Substract the value of an annual fix coupon bond and

- Add the value of the desired frequence fix coupon bond.

PS: Note that the MatLab function is likely not appropriate to value a swap in a "realistic" way, since it looks like multi-curve (OIS discounting) is not considered here (I wonder if term structure is considered?), see also Rationale for OIS discounting for collateralized derivatives?

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