Previous Topic

Next Topic

oIRbondOption_BDT1( ) Function

Component

Resolution - IRO Pricing

 

 

Function Definition

oIRbondOption_BDT1(ValueDate, OptionType, ExerciseStyle, ExerciseSchedule, Volatility, StepsPerCoupon, BondDated, BondMaturity, BondStubDates, Notional, Coupon, Frequency, AccrualBasis, BusDayConv, InterpMethod, ZeroCurve , Holidays, Output)

Calculates the option value. Can also return various risk statistics and details for the underlying bond.

 

 

IRO Types

Interest Rate Bond Options.

 

 

Function Parameters

 

Parameters

Description

 

Parameter Type

 

Restrictions

.

ValueDate

 

Valuation date of the bond option.

 

Date

 

 

OptionType

 

Call or Put

 

Enumerated Constant

 

1 - Call
2 - Put

ExerciseType

 

European, Bermudan or American.

 

Enumerated Constant

 

1 - European
2 - American
3 -
Bermudan

ExerciseSchedule

 

Lists exercise dates and the termination fee associated with each date. For European options, only the last date is used. For American options, every date between the first and last is assumed to be a valid exercise date.

 

 

 

Curve

 

 

 

 

 

 

 

 

Volatility

 

Annualised volatility of the underlying term structure, expressed as a decimal.

 

Double or Curve

 

Volatility >0%
If entered as a curve, the
volatility at the value date will be used to construct the term structure.

StepsPerCoupon

 

Determines the number of steps used to construct the lattice. The total number of branches in the lattice is also related to the number of coupon periods outstanding between the valuation date and the maturity date of the underlying bond.

 

 

 

 

Long

 

 

 

 

 

 

 

Steps per Coupon > 0

 

 

BondDated

 

The original issue date of the bond.

 

 

Date

 

 

 

BondEffective < BondMaturity

 

BondMaturity

 

The maturity date of the bond.

 

Date

 

BondMaturity > BondDated

BondStubDates

 

Only needed if the bond has an odd first or last period.

 

Array of Dates

 

 

 

 

First Coupon Date: Date that the first coupon is paid (if bond does not have an odd first period, leave blank).

 

 

 

F.C.D > BondDated
F.C.D <
P.C.D
F.C.D < BondMaturity

 

 

Penultimate Coupon Date: Date that the penultimate coupon is paid (if bond does not have an odd last period, leave blank).

 

 

 

P.C.D > Bond Dated
P.C.D >
F.C.D
P.C.D < BondMaturity

Notional

 

The face value of the bond. Assumed to be fixed for the life of the bond. This means that amortizing and accreting bonds are not supported.

 

 

Double

 

 

 

 

 

Coupon

 

Defines the coupon method to be used. Can be set to zero if required.

 

Double

 

 

Frequency

 

The frequency of the coupon.

 

 

Enumerated Constant

 

 

 

1 - Annual
2 - Semi - Annual
3 -
Quarterly
4 - Monthly
5 - Biweekly
6 -
Weekly

AccrualBasis

 

Basis for determining coupon amounts and accrued interest.

See Day Count Conventions

 

Enumerated Constant

 

1 - Act/Act (actual)
2 - Act/Act (bond)
3 -
Act/360
4 - Act/365
5 - Act/365
ISDA
6 -
Act/365 JGB (NL)
7 - 30/360 ISDA
8 -
30/360 PSA
9 - 30E/360
10 -
30E+/360
11 - Act/365L

BusDayConv

 

Business day convention. Used to determine the start and end date of each coupon payment period.

See Business Day Conventions

 

Enumerated Constant

 

1 - No Adjustment
2 - Previous
3 -
Following
4 - Mod Previous
5 - Mod
Following
6 - EOM No Adjust
7 - EOM
previous
8 - EOM following

InterpMethod

 

Method used to calculate rates and discount factors from the supplied zero curve.

 

 

Enumerated Constant

 

 

1 - Discount Factors
2 - Zero Rates

ZeroCurve

 

The zero curve that is used to project and discount cash flows.

 

Curve

 

 

Holidays

 

Schedule of non-business days (excluding weekends).

 

Date Range

 

Leave blank if not applicable

Output

 

Indicates which result (or set of results) will be displayed in the worksheet. When returning more than one value, the function must be entered as an array function.

 

Enumerated Constant

0 - All ten outputs
1 - Option Value
2 -
Delta
3 - Gamma
4 - Theta
5 -
Vega
6 - Clean Price (option inclusive)
7 -
Dirty Price (option inclusive)
8 - Clean Price
(option exclusive)
9 - Dirty Price (option
exclusive)
10 - Accrued Interest

 

 

 

 

 

 

 

Function Outputs

 

Output

 

Description

Option Value

 

The fair value of the option.

Delta

 

Delta measures the risk associated with a shift in the zero curve. This can be approximated by revaluing the option based on a zero curve that has been shifted up by 1 basis point.

Gamma

 

Defined here as the second derivative of the option value with respect to a parallel shift in the zero curve.

Theta

 

Defined as the sensitivity of option value with respect to an increase in time (reduction in time to maturity). This is estimated by revaluing the option with the valuation date incremented by one day.

Vega

 

Defined as the sensitivity of option value with respect to volatility. This is estimated by revaluing the option using an incremented volatility input.

Clean Price (Option Inclusive)

 

The clean price is computed by adding (for puts) or subtracting (for calls) the computed option value from the straight bond clean price. This value should be equal to the computed values for equivalent callable or puttable bonds.

Dirty Price (Option Inclusive)

 

The dirty price is computed by adding (for puts) or subtracting (for calls) the computed option value from the straight bond dirty price. This value should be equal to the computed values for equivalent callable or puttable bonds.

Clean Price (Option Exclusive)

 

The clean price for the underlying straight bond is computed as the straight bond dirty price less accrued interest.

Dirty Price (Option Exclusive)

 

The dirty price of the straight bond is derived directly from the interest rate lattice that is constructed to value the option itself. This value should be consistent with the input zero curve.

Accrued Interest

 

Computed using the same method that is used to compute accrued interest for a straight bond.

See Also

Parameter Types

oIRbondOption_BDT2( ) Function

oIRbondOption_HL( ) Function

oIRbondOption_HW( ) Function

oIRbondOption_BK( ) Function

Return to www.derivativepricing.com website

Copyright 2013 Hedgebook Ltd.