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Background to Money Market Pricing

Bond Pricing functions support the pricing and risk management for standard money market instruments. The term 'money market' is typically used to describe short-term debt instruments, where the interest return is based on simple interest (or money market) calculations. The Resolution functions are specifically designed to deal with instruments that have one year or less to maturity when they are first issued. Two major groups of instruments are supported:

  • Coupon Bearing Instruments The most common examples are Certificates of Deposit (CD's) and Time Deposits, which usually have a term less than a year and pay interest at maturity.
  • Discount Instruments Includes Commercial Paper (CP) and Treasury Bills. These instruments do not pay a coupon and are therefore issued at a discount to face value. The current price can be based on a simple interest yield or on a discount rate.

Apart from calculating yields and prices, the money market pricing functions can also return the same set of risk statistics as is supported by all of the coupon bond pricing functions.

Note that some money market instruments are issued with a maturity greater than a year. Although the supported set of money market functions are not designed to handle this type of instrument, they can be dealt with using the generic bond functions.


In This Section

Money Market Pricing Formulas

Money Market Function Parameters

Money Market Function Output Calculations

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