Trade
USD10MM 1-year payer swap, 2% coupon; fixed and floating coupons paid quarterly.
Model
Scenarios computed by a Hull-White model, with the initial yield curve flat at 2%, Gaussian (basis point) volatility of 1%, and mean reversion speed of 5%.
Non-aligned tests place the full valuation grid approximately half-way between trade flow dates. Aligned tests align the full valuation grid on trade flow dates.
The Brownian bridge method uses monthly valuation points; kernel regression for volatility estimation in the bridge is based on a Gaussian kernel with bandwidth determined by Silverman’s rule of thumb.
Exposure
Expected exposures are computed by brute-force daily simulation using Conservative calibration. The margin agreement uses daily margin transfers, no thresholds, and no MTA/rounding.
