Forward Rate Agreement

A Forward Rate Agreement (FRA) is a financial instrument that represents the one off exchange of a fixed rate of interest for a floating rate at a future date.

For example, a FRA might involve an agreement to exchange the difference between the fixed rate of 1% and the GBP LIBOR rate in 2 months time.

Key classes

A FRA is represented in Strata using the Fra class. The Fra class stores details of the product that was agreed. The trade details are stored in FraTrade class.

A Fra can be created using a builder as follows:

Fra fra = Fra.builder()
  .startDate(LocalDate.of(2015, 6, 15))
  .endDate(LocalDate.of(2015, 9, 15))
Tip: The strata-loader project provides the ability to load a FRA from FpML.

Risk measures

The strata-measure module provides high-level risk measures for FRAs. The main entry point is FraTradeCalculations.

The following measures are available:

  • present value, detailed breakdown, and associated sensitivity
  • single-node bucketed gamma
  • par rate
  • par spread
  • currency exposure
  • current cash

These measures are also available using the calculation API.

The strata-pricer module provides lower-level pricing support for FRAs:

  • DiscountingFraTradePricer, see Javadoc.
  • DiscountingFraProductPricer, see Javadoc.

Product model

The following table summarizes the fields on Fra that can be used to control the product. For more detail on the meaning of each field, see the Javadoc;

Property name Description Required/Optional
buySell Whether the FRA is buy or sell Required
currency The primary currency Defaults to the currency of the index
notional The notional amount Required
startDate The start date Required
endDate The end date Required
businessDayAdjustment The holiday adjustment to the start/end date Optional
paymentDate The payment date Defaults to the startDate
fixedRate The fixed rate of interest Required
index The Ibor index to observe Required
indexInterpolated The second Ibor index to observe, when interpolating Optional
fixingDateOffset The offset to the fixing date Defaults to the offset of the index
dayCount The day count Defaults to the day count of the index
discounting The approach to FRA discounting Defaults based on the currency

The fixed interest rate must be specified in decimal form. A 5% rate is specified as 0.05.

Three methods of FRA discounting are supported - ‘None’, ‘ISDA’ and ‘AFMA’. These correspond to the ISDA 2006 definitions.