Moratorium/Delayed Cash Flows for IRS Valuation in QuantLib

[gouthamnarayanan]

Dear All,

I have created a simple IRS swap pricer that values my swap and returns the NPV and irs.fairRate() using existing code from other QuantLib users.

The code works fine. A problem arises when I have a special cash in which a swap contract is entered into today but cash flows do not occur for a given period(moratorium). In my special case the first cash flow is after 18 months.

Below the code:

from QuantLib import *
#globals
nominal = 1000000
calendar = UnitedStates()
todayDate = Date(5, June, 2020)
settlementDate = calendar.advance(todayDate, 2, Days)
Settings.instance().evaluationDate = todayDate
maturity_date = calendar.advance(todayDate, 5, Years)
#market quotes
deposits = { (3,Months): 0.003129,
(6,Months): 0.004813,
(1,Years): 0.00634 }
swaps = { (2,Years): 0.00288,
(3,Years): 0.00333,
(4,Years): 0.00409,
(5,Years): 0.00498,
(10, Years): 0.00864}
#convert to Quote objects
for n,unit in deposits.keys():
deposits[(n,unit)] = SimpleQuote(deposits[(n,unit)])
for n,unit in swaps.keys():
swaps[(n,unit)] = SimpleQuote(swaps[(n,unit)])
# build rate helpers
dayCounter = Actual360()
settlementDays = 2
depositHelpers = [ DepositRateHelper(QuoteHandle(deposits[(n,unit)]),
Period(n,unit), settlementDays,
calendar, ModifiedFollowing,
False, dayCounter)
for n, unit in [(3,Months),(6,Months),(1,Years)] ]
fixedLegFrequency = Quarterly
fixedLegTenor = Period(3,Months)
fixedLegAdjustment = Unadjusted
fixedLegDayCounter = Actual360()
floatingLegFrequency = Quarterly
floatingLegTenor = Period(3,Months)
floatingLegAdjustment = ModifiedFollowing
swapHelpers = [ SwapRateHelper(QuoteHandle(swaps[(n,unit)]),
Period(n,unit), calendar,
fixedLegFrequency, fixedLegAdjustment,
fixedLegDayCounter, Euribor3M())
for n, unit in swaps.keys() ]
# term structure handles
discountTermStructure = RelinkableYieldTermStructureHandle()
forecastTermStructure = RelinkableYieldTermStructureHandle()
# term-structure construction
helpers = depositHelpers + swapHelpers
depoFutureSwapCurve = PiecewiseFlatForward(settlementDate, helpers, Actual360())
swapEngine = DiscountingSwapEngine(discountTermStructure)
#Swap pricer
fixedLegFrequency = Quarterly
fixedLegAdjustment = Unadjusted
fixedLegDayCounter = Actual360()
fixedRate = 0.004972128760695568
floatingLegFrequency = Quarterly
spread = 0
fixingDays = 0
index = Euribor3M(forecastTermStructure)
floatingLegAdjustment = ModifiedFollowing
floatingLegDayCounter = Actual360()
fixedSchedule = Schedule(settlementDate, maturity_date,
fixedLegTenor, calendar,
fixedLegAdjustment, fixedLegAdjustment,
DateGeneration.Forward, False)
floatingSchedule = Schedule(settlementDate, maturity_date,
floatingLegTenor, calendar,
floatingLegAdjustment, floatingLegAdjustment,
DateGeneration.Forward, False)
irs = VanillaSwap(VanillaSwap.Payer, nominal,
fixedSchedule, fixedRate, fixedLegDayCounter,
floatingSchedule, index, spread,
floatingLegDayCounter)
irs.setPricingEngine(swapEngine)

discountTermStructure.linkTo(depoFutureSwapCurve)
forecastTermStructure.linkTo(depoFutureSwapCurve)
print(depoFutureSwapCurve.dates())
for c in depoFutureSwapCurve.dates():
print(depoFutureSwapCurve.discount(c))
print(" IRS NPV :", irs.NPV())
for i, cf in enumerate(irs.leg(0)):
print("%2d %-18s %10.2f"%(i+1, cf.date(), cf.amount()))
print('-------------')
for i, cf in enumerate(irs.leg(1)):
print("%2d %-18s %10.2f"%(i+1, cf.date(), cf.amount()))
print(" IRS FAIR RATE", irs.fairRate())



As you can see in the above code, I have taken the settlement date to be 2 days after the evaluation date. I tweaked this date and instead put:
settlementDate = calendar.advance(todayDate, 18, Months),
To reflect that the first payment would be after 18 months but received the following error:

RuntimeError: 1st iteration: failed at 1st alive instrument, pillar June 9th, 2022, maturity June 9th, 2022, reference date December 6th, 2021: 2nd leg: negative time (-0.244444) given


I want to know where my thinking is wrong and whether it is possible to include a moratorium function as well in my IRS valuation.

Thank You,
Best,
Goutham