A double period loan is a swap in which the structured leg has two payment periods.
The first payment period uses a fixed rate for its coupon payments; the second payment period uses a capped floating rate for its coupon payments. The changeover date (or switch date) defines the date when you change from the fixed rate period to the floating rate period; it is the end date of the first period and the start date of second period.
Pricing a Double Period Loan in SDX Interest Rates
When defining a double period loan you should be aware of the following:
The swap term can be defined in either of the following formats:
In the format of 3y2y, whereby 3y defines the first period and 2y defines the second period.
In the format of 3m1m2m, i.e., for a forward starting trade. That is, 3m defines when the trade should start, 1m defines the first period and 2m defines the second period.
You must manually define:
The fixed rate for the first period.
The Cap Rate for the second period.
The changeover date or Switch Date.
In addition, a margin is also needed. You can define this manually or leave it for the system to calculate the value that will give a swap NPV of zero. For more information on this field see Margin.
Subsequently you can see this value in the Swap Cash Flow Dates window (accessed by clicking the Cash Flow & Dates button) in basis points in the Margin (bp) column, as an amount in the Margin column, and as a present value (i.e., the amount which must be paid/received in addition to the cashflow) in the Margin PV column.