A gas formula swap strip (gfs) is a strip of Gas Formula swaps.
Once you have defined the instrument and calculated it, you can then see more information on its underlying swaps in the Expiry Dates & Rates window.
Pricing a gas formula swap strip in SDX Commodities & Energy
Currently a gas formula swap strip can only be priced in the Single Option page.
When defining a gas formula swap strip:
You must first define the gas formula to be used in pricing it.
You define your own gas formula(s) using the Gas Formula Builder window.
The unit and the currency in the pricing page is taken from the fields in the Formula area of the Gas Formula Builder window.
You have to select the gas formula to be used in pricing this swap before you can define its gas term.
To see the supported gas terms click the “i” icon next to the Gas Term field.
After you enter the gas term the system automatically defines the begin and end dates. These dates cannot be manually edited.
The settlement frequency is set to Monthly by default. This is because according to market convention the gas term of each underlying gas formula swap must be a complete month.
As soon as you enter the gas term SDX Commodities & Energy automatically calculates the fixed rate that gives a zero cost instrument (i.e., it is defined to be the same as the calculated gas formula rate, which SDX Commodities & Energy calculates using the defined gas formula). This amount is displayed in the Traded Rate field.
You can then manually change the fixed rate and then recalculate the instrument. This will affect the present value of the swap strip.
Why would you want to be able to change the fixed rate? There are a number of reasons, but there are two main ones. One is if you agree on a fixed rate on a certain day, but only actually enter the instrument on a later day when the gas formula rate itself has changed. This feature gives you the flexibility to enter the agreed upon gas formula rate. The other reason is that it lets you see the present value of a gas formula swap strip that you entered into in the past with a specified price per unit.