workflow-derivatives-swaps

name	workflow-derivatives-swaps
description	WHAT: Value interest rate swaps and cross-currency swaps; bootstrap a par-coupon discount curve; compute DV01, par rate, fixed/floating leg PVs, and swap NPV. WHEN: Invoke for swap mark-to-market, ALM hedge book valuation, IRS package pricing, new trade fair-value verification, or any task requiring a defensible swap NPV with duration sensitivity.

Interest Rate and Currency Swap Valuation

What this skill covers

A structured pipeline for valuing vanilla interest rate swaps (pay-fixed / receive-fixed) and cross-currency swaps. Builds or validates the discount curve from market data, decomposes the swap into fixed and floating legs, computes NPV and DV01, and quantifies scenario exposure across rate shifts. Applicable to single-currency IRS, overnight index swaps (OIS), and multi-currency cross-currency basis swaps.

Workflow

Phase 1 — Curve Construction

1. Risk-free / SOFR curve: call fred_yield_curve for the SOFR or US Treasury curve. Alternatively call fmp_treasury_rates for the Treasury par-coupon curve. For non-USD swaps, call lseg_yield_curve if LSEG access is available, or fred_series for the central bank policy rate and short-term benchmarks.
2. Bootstrapped spot rates: call bootstrap_spot_curve with the par-coupon rates and payment frequencies to produce a zero-coupon (spot) rate curve. This is the discount curve used for all leg valuations.
3. Floating rate index: identify the reference rate (SOFR, EURIBOR, SONIA, CDOR) and its term (1M, 3M, 6M). Source the current fixing from fred_series or lseg_economic_indicators.

Phase 2 — Interest Rate Swap Valuation

4. Call interest_rate_swap with:
   • notional: the swap notional principal.
   • fixed_rate: the contractual fixed coupon rate.
   • tenor: swap maturity in years.
   • payment_frequency: typically semi-annual (2) for USD swaps.
   • discount_curve: the spot rates from Phase 2 (pass as array of {tenor, rate} pairs).
   • floating_rate: current floating index rate.
   • position: "pay_fixed" or "receive_fixed".
5. Extract from the tool response:
   • Fixed leg PV: present value of all contractual fixed payments.
   • Floating leg PV: present value of projected floating payments.
   • Swap NPV: floating leg PV minus fixed leg PV (positive = asset for receiver of fixed).
   • Par rate: the fixed rate that makes the swap NPV = 0 at current market levels.
6. Compute annualized DV01 (dollar value of a 1 basis point shift): call bond_duration with the fixed leg cash flows and the discount curve, then convert modified duration to DV01:
   • DV01 = (Modified Duration × Fixed Leg PV) / 10,000.

Phase 3 — Cross-Currency Swap Valuation (if applicable)

7. When the task involves two currencies, call currency_swap with:
   • Domestic and foreign notionals (typically principal exchange at inception and maturity).
   • Domestic and foreign fixed or floating rates.
   • Spot FX rate and term structure from fx_forward or fred_series.
   • Cross-currency basis spread (source from lseg_yield_curve or analyst assumption; document source).
8. Extract: NPV in domestic currency, per-leg PV in each currency, implied FX swap rate, cross-currency basis.

Phase 4 — Sensitivity Analysis

9. Call sensitivity_matrix with parallel rate shifts of −100, −50, 0, +50, +100 bps on both the discount curve and the floating rate index to produce a 5 × 5 NPV grid (or a 5-row DV01 profile if single-variable sensitivity is sufficient).
10. For convexity assessment, compute the change in DV01 between the +50 bp and −50 bp scenarios. A meaningful convexity difference (> 5% of DV01) should be flagged.

Phase 5 — Par Rate and Breakeven Analysis

11. Document the breakeven analysis:
    • Breakeven rate: the fixed rate at which the swap has zero NPV (= par rate from Phase 2).
    • Current fixed rate vs par rate: positive difference means the fixed leg is above-market (positive value for fixed receiver).
    • Rate required to wipe out current NPV: the parallel shift that drives NPV to zero.

Output Format

Swap Valuation Summary

Parameter	Value	Source
Swap type	Pay-fixed / Receive-fixed	Input
Notional	—	Input
Fixed rate	—	Input
Tenor (years)	—	Input
Floating index	—	Input
Current floating fixing	—	fred_series
Discount curve source	—	fred_yield_curve / fmp_treasury_rates
Fixed leg PV	—	interest_rate_swap
Floating leg PV	—	interest_rate_swap
Swap NPV	—	interest_rate_swap
Par rate	—	interest_rate_swap
DV01 (per $1M notional)	—	bond_duration

Cross-Currency Swap (if applicable)

Parameter	Value	Source
Domestic currency NPV	—	currency_swap
Foreign currency NPV	—	currency_swap
Cross-currency basis spread	—	lseg_yield_curve / assumption
Implied FX swap rate	—	currency_swap

Rate Sensitivity (DV01 Profile)

Rate Shift (bps)	Fixed Leg PV	Floating Leg PV	Swap NPV	DV01
−100
−50
0 (base)
+50
+100

Bootstrapped Spot Curve

Tenor	Par Rate	Spot Rate

Tool-Call Traceability

#	Tool	Key Inputs	Output

Quality Gates

• Discount curve bootstrapped from market par rates via bootstrap_spot_curve; not assumed flat.
• Fixed leg PV and floating leg PV both extracted from interest_rate_swap tool response.
• Par rate reported; current contractual rate vs par rate spread documented.
• DV01 computed via bond_duration on fixed leg cash flows; not hand-estimated.
• Rate sensitivity grid covers at least ±100 bps range.
• Cross-currency basis spread sourced and documented when cross-currency swap is in scope.
• Convexity assessed between +50 and −50 bp DV01 values; flagged if > 5% difference.
• Every number in output maps to a row in the traceability table.

Related Skills

• workflow-derivatives-futures-forwards — forward pricing shares the same discounting framework.
• workflow-derivatives-option-pricing — swaptions require the swap valuation as the underlying.
• workflow-derivatives-structured-products — interest rate swap components are embedded in many structured notes.
• corp-finance-analyst-derivatives — agent body with dual-curve discounting conventions and tool calling patterns.