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Money Market Pricing Formulas

The settlement (dirty) price for all of the money market instruments supported by Resolution can be calculated using the following general formula:

Equation Template

DP = dirty price of the instrument.
MP = maturity proceeds of the instrument.
y = current yield of the instrument, expressed on a simple interest basis.
DIP = number of days between the settlement date and the maturity date, based on the selected day count basis (always "Actual" for MM instruments).
DIY = assumed number of days in a year, based on the selected day count basis.

 

The maturity proceeds for a discount instrument are simply equal to the specified face value. For coupon bearing instruments, the maturity proceeds are computed as:

Equation Template

FV = face value (principal) of the instrument.
CR = coupon rate, expressed as a decimal.
DIP = number of days between the dated date and the maturity date, based on the selected day count basis (always "Actual" for MM instruments).
DIY = assumed number of days in a year, based on the selected day count basis.

Instruments that are quoted on the basis of a discount rate rather than a market yield are priced using the following formula:

Equation Template

P = current price of the instrument.
DR = discount rate, expressed as a decimal.

 

Alternatively, discount instruments can be priced using the standard money market formula and a market yield that is equivalent to the quoted discount factor. The formula for converting a discount rate to an equivalent yield is as follows:

Equation Template

y = equivalent market yield.

 

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