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oMMdisc_Price( ) Example

Description

On January 20 2003, a T-bill with a $1 million face value matures in 78 days (maturity date is April 8 2003). The accrual basis is actual/365. If the current discount rate is 6.15%, then the fair vale is calculated as follows:

 

 

Function Specification

=oMMdisc_Price(0.0615, 2, "20/1/03", "8/4/03", 1000000, 2, 0)

 

 

Solution

The fair value of the instrument is calculated as follows:

Equation Template

where:
FV = $1,000,000
DR = 6.15%
DIP = 78 (8/4/03 - 20/1/03)
DIY = 365

 

 

 

Converting the discount rate to the equivalent yield gives:

Equation Template

The following demonstrates that using the equivalent yield in the standard money market formula gives the same fair value:

Equation Template

 

 

 

The following results are obtained from setting the output flag to 0.

Fair Value

986,857.5342

Dollar Discount

13,142.4658

Days to Maturity

78

Macaulay Duration

0.213699

Modified Duration

0.210890

Convexity

0.088949

Price Value of a Basis Point

20.81185

 

 

For further details on how the above prices and statistics are calculated, see the money market formula.

 

 

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