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.