Comparison of JPM and CWG Commodity Swap Models

Comparison of JPM and CWG Commodity Swap Models

This document contains a brief comparision of the commodity swap models produced by the CWG during its offsite and a proposal produced by JPM.

Product Type

Both models use the features added to FpML for return swaps, however they differ in the choice of base type. In the CWG model Commodity swap is derived from ReturnSwapBase while JPM model the base product is derived from ReturnSwap which give it a number of additional

Figure 1 CWG CommoditySwap

Figure 2 JPM CommoditySwap

Commodity Leg

Both models use extended ReturnSwapLeg types to model the financial exchanges over the lifetime of the contract.

To capture the details of the commodity exchange the CWG model defines a CommoditySwapLeg.

Figure 3 CWG CommoditySwapLeg

In the JPM model the same information (and more) is captured by a FloatLeg.

Figure 4 JPM FloatLeg

The JPM structure is more generic than one defined by the CWG and extends to multiple product types. The JPM structure groups parameters under six sub-areas where as the CWG model is flatter. The types used in the JPM model provide greater parameteric control over the floating definition than the CWG model.

Both models use structures derived from the FpML UnderlyingAsset type to identify the underlying commodity and its price source.

Figure 5 CWG CommodityReferencePrice

Figure 6 JPM Index

Payment Leg

In the CWG model the CommoditySwapLeg structure is used to express either the fixed or floating side of the swap. In the JPM model a specific ‘InterestLeg’ is used to describe the pay made against the commodities side.

Figure 7 JPM InterestLeg

Recommendation

Whilst the two models use a similar approach to describing commodity swap products the model in the JPM proposal offers a greater range of facilities and extends to more product types than the narrower CWG definition.

The CWG should consider adopting it as the basis for its work.