I would like to price a spreadlock forward swap and a spreadlock swaption but I don't find in the web any research article. Would you please provide me with some freely accessible papers on the web ? If not could someone help by exposing models and the key assumptions to price such products ?

My issue is how to calculate forward bond yield under swap/swaption natural risk neutral measure.


I'm not familiar with the terms "spreadlock forward swap " and "spreadlock swaption". A "spreadlock" is an agreement to buy or sell swap spreads on a specific forward date. For example, if you buy a spreadlock on the 5yr for Nov 18 2018 at 14 it means you will enter a 5yr interest rate swap starting 2 business days after nov 18 2018 where you will pay a fixed rate equal to 14bp over the then prevailing 5yr Treasury yield, versus receiving Libor.

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  • $\begingroup$ Agreed and in my experience spreadlock trades are rare if they exist for more than one day, i.e. most spreadlocks relate to bond issues that execute in the morning (the spread component) and then price the issue separately in the afternoon (the delta component). I have seen a couple longer term spreadlocks but the term sheets differ to precisely reflect the slightly different requirements of the client, hence each has its own pricing features. $\endgroup$ – Attack68 Sep 4 '18 at 5:35
  • $\begingroup$ thank you very much @dm63, that is exactly the payoff of the "spreadlock forward swap". My issue is how to price the "forward" treasury yield under the forward swap measure (related to the annuity numeraire) ? $\endgroup$ – Jiem Sep 4 '18 at 9:00

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