True yields are computed based on a cash flow stream that has been adjusted for the actual payment dates. That is, each scheduled coupon payment is discounted back from the actual payment date (as opposed to the notional payment date) based on the selected business day convention and the relevant holiday schedule provided by the user. The discount factor for coupon payment i is computed as:
DFi = the discount factor for the i'th coupon payment.
y = the annual nominal redemption yield, expressed as a decimal.
h = number of coupon periods per year.
DTPi = the number of days between the actual payment date for the i -1'th coupon and the actual payment date for the i'th coupon, based on the selected discounting days basis.
DIPi = the number of days between the nominal payment date for the i - 1'th coupon and the nominal payment date for the i'th coupon, based on the selected discounting days basis.
Copyright 2013 Hedgebook Ltd.