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Final Period Pricing Conventions

The selection for final period pricing convention determines the basis for which the yield is calculated for bonds in their final period. The conventions supplied by Resolution are defined below.

 

1. Compound Yield

The final period yield is calculated using the standard ISMA formula, which is simplified as follows when there is only one outstanding coupon:

Equation Template

P = dirty price (clean price plus accrued interest) of the bond per 100 units face value.

r1 = number of days from the settlement date to the final nominal coupon payment date (based on the appropriate accrual convention).

r2 = number of days from the date of the last 'normal' coupon payment to the maturity date
(based on the appropriate accrual convention). This is equal to zero if the bond does not have an odd final period.

s = number of days in the relevant coupon payment period (based on the appropriate accrual convention).

d1 = the remaining coupon payment. It may equal zero if the bond is trading ex-dividend.

c* = the final coupon amount for a bond with an odd final period. This is zero for all other bonds.

v = the discount factor for one period,

h = number of coupon periods in a year.

y = the required annual nominal redemption yield, expressed as a decimal.

 

2. Money Market (Actual/360)

The final period yield is calculated using the simple interest (money market) formula, with an act/360 day count convention. The money market formula is simplified as follows when there is only one outstanding coupon:

Equation Template

P = dirty price (clean price plus accrued interest) of the bond per 100 units face value.

ym = annual money market yield (simple interest).

c = annual percentage coupon rate.

h = number of coupon periods in a year.

d = number of days to redemption (based on actual number of days in period, see day count conventions).

a = number of days in a year (based on a 360 day year, see day count conventions).

 

 

3. Money Market (Actual/365)

The final period yield is calculated using the simple interest (money market) formula, with an act/365 day count convention. The money market formula is simplified as follows when there is only one outstanding coupon:

Equation Template

a = 365 (see day count conventions).

 

4. Money Market (Actual/Actual)

The final period yield is calculated using the simple interest (money market) formula, with an act/365 day count convention. The money market formula is simplified as follows when there is only one outstanding coupon:

Equation Template

a = actual number of days in a year (see day count conventions).

 

5. True Yield

The final period yield is calculated using the true yield, which is simplified as follows when there is only one outstanding coupon:

Equation Template

DFn = the discount factor for the final coupon payment.

DFn-1 = the discount factor for the penultimate coupon payment.

DTPn = the number of days between the actual payment date for the penultimate coupon and the actual payment date for the final coupon, based on the selected discounting days basis.

DIPn = 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.

 

6. Iterative Compound Yield

The final period yield is calculated using the iterative compound yield, which is otherwise identical to the true yield except the nominal dates of the penultimate and final coupons are replaced with the corresponding actual dates (see Cash Flow Details).

 

7. Japanese Government Bond Yield

The final period yield is calculated using the JGB yield, which is given as follows:

Equation Template

T = number of days from the settlement date to the maturity date divided by 365

PPH = clean price of the bond per 100 units face value.

 

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