Electronic Rates Markets & Low Latency Interest Rate Swap Calculations

In electronic rates markets accuracy and low latency are threshold requirements that can be a barrier to market entry as they are essential to survive and compete. In this paper we outline how to achieve high performance by reducing swap pricing and risk calculations into trivial vector and matrix multiplication operations. This low latency approach has been successfully applied to Quant analytics in a live trading environment to create core trading competencies that can respond dynamically to market opportunities and challenges, as outlined in (Burgess, 2020) and (Burgess, 2022c).We proceed as follows, firstly we discuss how to quote, price and book swaps for live execution purposes. Secondly, it is essential to understand the swap booking, schedule generation and pricing processes in detail in order to optimize swap calculations for low latency pricing, curve construction and risk. It follows that the majority of the calculation process can be reduced to static data that can be stored and reused rather than wastefully recomputed every calculation cycle. Thirdly, we discuss how to reduce calculations into their reduced primitive optimal state. We provide an Excel workbook to demonstrate the key concepts, see https://bit.ly/LowLatencySwaps. Fourthly, we touch upon advanced concepts including curve Jacobian and algorithmic adjoint differentiation (AAD). Finally to complete the picture we note that once calculations are in their primitive state we can further accelerate performance using parallelization, hardware and other technology solutions