A callable zero coupon swap is a zero coupon swap (see Zero Coupon Swap) where the payer of the zero coupon rate leg has the right but not the obligation to terminate the underlying zero coupon swap on any coupon date after the predefined lockout date.
Once the instrument is called, the payer of the zero coupon rate leg then pays the accreted value, i.e., the fixed amount compounded up to the exercise date (the date the instrument was called).
Advantages of a Callable Zero Coupon Swap
An investor may enter into a callable zero coupon swap to enhance yield. That is because, in order to compensate for the risk that the other party may cancel the swap (as well as the risk embedded in the coupon formula) the interest rate is preferential to the rate that would be received on a vanilla investment.
Pricing a Callable Zero Coupon Swap in SDX Interest Rates
You price a callable zero coupon swap in the same way as you would price a zero coupon swap (see Zero Coupon Swap).
However, once you have defined the compounding frequency the system then defines the call dates to match the start dates of the underlying coupons using the defined frequency.
You can then edit the first call date using the First Eff. Call Date field.
Currently in SDX Interest Rates you cannot see the remaining call dates for this instrument.