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Hi, We are trying to implement an FpML based feed and we have a question on how to represent the treatment of the accrual of the floating leg. We have a swap with compounding in which we reinvest the interest gained during the first period into the second period. In the subsequent periods there is no reinvestment of the accruals. How could we represent this feature? Could we use the compoundingMethod equals to “Flat” to represent such behaviour? The compoundingMethod seems to relate to the treatment of the spread on top of the rate but does it include the treatment of the gained interest as well? Any help would be appreciated. Cheers, Matt Hawkings
The compoundingMethod (Flat, Straight, SpreadExclusive) refers to the treatment of the component of the accrued interest amount attributable to the spread (floating rate margin). It is assumed that the remaining interest amount is always reinvested (i.e. increments the notional). Could you send an example of the trade you’re describing? Thanks, Marc
