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I'm looking for a precise definition of how FX outright delivery dates are computed.

Chapter 1 of the book 'Foreign Exchange Option Pricing: A Practitioners Guide' (this chapter can be found here) outlines quite precisely the rules for calculating expiry and deliver dates for FX options in Section 1.5, but it is not clear to me whether or not these rules also apply to calculation of delivery dates of FX outrights?

In particular, the above reference (along with Wikipedia) state that for outrights less than a month (terms of days or weeks), the delivery date is obtained by adding the number of days to TODAY, and then adjusting the resulting date forward. However other sources indicate that you should instead add the number of days to the SPOT date, and then adjust the resulting date forward. Which is correct?

Is there a golden source for these rules for outrights/swaps, perhaps something along the lines of The 1997 ICOM Master Agreement Guide document for FX options?

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1 Answer

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Firstly, in FX, it all depends on the currencies. As an example, CAD is generally traded t+1 against USD, but is also frequently traded t+2. A EUR/CHF forward can take into account USD holidays (to permit arbitrage or take into account a position via USD), or ignore them.

Basically it's an OTC market and the less common the trade, the more variable the specifics.

Variables (non-exhaustive):

  • Country of trade
  • Inclusion of major currency holidays (USD, EUR)
  • Holidays of traded currencies
  • Spot (t+?) for both currencies
  • Weekend days
  • Deliverable or non-deliverable (non deliverable can choose to ignore currency holidays)

It is down to the traders (or these days their e-trading platform) to decide exactly which dates they want to trade for.

If you're thinking 'then how can I interpret market data', then you're on the right lines; there are striaghtforward conventions, but I'm afraid not all sources quote the same way. G10/11 are fairly standard (except CAD), but outside that it's down to market knowledge.

Generally: Use t+2 except for specific pairs, include USD holidays, include holidays and weekends for both currencies. And check your sources.

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Thanks Phil, I agree there are a lot of factors to consider. However, I was trying to ask: calendar issues and such-like aside, are delivery dates for short dated outrights (say, 1W) computed by 1) adding a week to today, and then adding T+2 business days, or, 2) adding a week to the spot value date? – mpeac Sep 6 '12 at 8:28
Ah, that's a more specific question. SW is calculated by adding a week to Spot, and then rolling on until you have a valid business day in all the appropriate markets. – Phil H Sep 6 '12 at 11:50
Great, thanks Phil – mpeac Sep 7 '12 at 2:05

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