DIH’s Swaption Volatility Data.
Overview: DIH provides daily normalized volatility cubes for interest rate swaptions with skew for global currencies. Volatilities are expressed in basis points and correspond to standardized cube nodes, including:
- A-the-Money (ATM) strikes and out-of-the-money strikes are specified as positive and negative offsets of the ATM forward rate in 25, 50, 100, 150, and 200 basis point increments
- Standard option tenors, typically from 1 month to 30 years
- Standard swap tenors, typically from 1 year to 30 years
Coverage: We currently cover 20 global currencies.
History: Our data includes up to 5 years of history.
Updates: We update our swaption volatility data both intraday and at the end of the day with snap times at the close of the local currency bond market.
Delivery: You can receive our data in bulk files via download, S3 to S3, or on-demand via API.
Pricing: Several inputs go into the pricing for our data. For example, do want data for all available instruments, or a subset? How much history do you want? Do you want updates going forward? Contact us to learn more.
Why Firms Choose DIH’s Data.
Institutional market participants use DIH’s swaption volatility data for valuations, portfolio analytics, and risk management calculations.
There are several reasons institutional investors rely upon our data:
- Market Coverage – We currently provide daily normalized volatility cubes for interest rate swaptions with skew for 20 currencies.
- Accuracy – Our data is created from market-observable quotes for swaptions directly from dealer desks. These volatilities are quoted using OIS discounting, where applicable, or as forward premiums. We use these quotes to calibrate the SABR model, the output of which is a normalized volatility cube.
- Cost – There are not a lot of sources for swaption volatility data, and so the legacy data providers are typically inflexible when it comes to what they charge for such data. In contrast, DIH works with its clients to provide data within their budget.
An Overview of Swaption Volatility Data.
Before we get into the details of how our data is created, a quick review of swaptions may be helpful.
WHAT IS A SWAPTION?
A swaption, also known as a swap option, refers to an option to enter into an interest rate swap or some other type of swap. The buyer of the swaption pays a premium to gain the right, but not the obligation, to enter into a specified swap agreement with the issuer (seller) on a specified date in the future.
There are two main types of swaptions:
Payer Swaption – the buyer of the swaption has the right, but not the obligation, to enter into a swap contract where they become the fixed-rate payer and the floating-rate receiver.
Receiver Swaption – the opposite of a payer swaption where the buyer has the option to enter into a swap contract where they become the fixed-rate payer and the floating-rate receiver.
Swaptions are over-the-counter contracts and are not standardized. So the buyer and seller need to both agree to the price of the swaption, the expiration date, the notional amount, and the fixed/floating rates.
Beyond these terms, the buyer and seller must also agree upon the swaption style:
- Bermudan – the buyer is allowed to exercise the option and enter into the specified swap on a predetermined set of specific dates.
- European – the buyer is only allowed to exercise the option and enter into the swap on the expiration date of the swaption.
- American – the buyer can exercise the option and enter into the swap on any day between the origination of the swap and the expiration date.
Again, swaptions are non-standardized, so the buyer and seller may agree to more creative, personalized terms.
HOW DOES THE SWAPTION MARKET WORK?
As we mentioned, swaptions are over-the-counter contracts and are not standardized. They are not traded and cleared via an exchange. So the buyer and seller need to both agree to all of the terms of the contract. Swaptions are offered in most of the major global currencies. Commercial banks are typically the major market makers of swaptions.
Given the sophistication of swaptions, and the resources it takes to monitor and manage a portfolio of such instruments, they are typically only traded by large financial institutions (like banks and hedge funds) or large corporations who need to manage interest rate risk.
METHODOLOGY BEHIND OUR SWAPTION VOLATILITY DATA.
The data starts with market-observable quotes for swaptions directly from dealer desks. These volatilities are quoted using OIS (“Overnight Index Swap”) discounting, where applicable, or as forward premiums. We use these quotes to calibrate the SABR (“Stochastic Alpha, Beta, Rho”) model, the output of which is a normalized volatility cube.
We provide normalized volatilities in order to ensure consistent coverage, even in negative interest rate environments.
While normalized volatilities will calibrate for negative ATM rates, some negative offset strikes, particularly for short tenors, that produce negative forward rates, will not calibrate given the limitations of the SABR model.
The resulting data files include the following:
Proprietary Identifiers – made up of the:
- Currency – the ISO currency code of the underlying interest rate swap.
- Option Tenor – the tenor of the option in months (M) or years (Y).
- Swap Tenor – the tenor of the swap in months (M) or years (Y).
- Strike – the strike of the option as positive (P) or negative (N) offsets of 25, 50, 100, 150, or 200 basis points. An at-the-money strike is denoted “AM”.
Spotted Date – the date on which the NVOL was spotted in the market. Volatilities are spotted as of the close of the local currency bond market (historical files only).
NVOL – the Normalized Volatility, expressed in basis points.
Who Can Benefit from DIH’s Data?
Our swaption volatility data is invaluable to anyone who participates in the fixed income or derivatives markets. We see a wide range of institutional market participants using our data, including:
- Hedge Funds
- Asset Managers
- Investment Banks
- Large Corporations (managing interest rate risk)
Such firms utilize our swaption volatility data in various ways, especially to hedge options positions on bonds, help in restructuring existing positions, change their aggregate payoff profile, manage interest rate risk, etc.
How Firms Use Our Data.
Institutional market participants rely upon our swaption volatility data for:
- Portfolio Analytics
- Risk Management
Flexible Updates & Data Delivery Methods.
Our swaption volatility data is available on an intraday or end-of-day basis.
You may customize our data to best suit your needs. For example, request data on all available instruments or provide a custom list.
We offer several ways to access our swaption volatility data:
Bulk File Download – For most of our clients, downloading our data in bulk files is most convenient. We deliver files in .CSV format via download or S3 to S3.
API – Some use cases are better suited for on-demand delivery of data via an API.