Component |
Resolution - IRO Pricing |
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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. |
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IRO Types |
Interest Rate Bond Options. |
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Function Parameters |
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Parameters |
Description |
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Parameter Type |
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Restrictions |
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ValueDate |
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Valuation date of the bond option. |
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Date |
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OptionType |
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Call or Put |
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Enumerated Constant |
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1 - Call |
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ExerciseType |
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European, Bermudan or American. |
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Enumerated Constant |
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1 - European |
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ExerciseSchedule |
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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. |
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Curve
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Volatility |
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Annualised volatility of the underlying term structure, expressed as a decimal. |
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Double or Curve |
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Volatility >0% |
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StepsPerCoupon |
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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. |
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Long
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Steps per Coupon > 0
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BondDated |
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The original issue date of the bond. |
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Date
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BondEffective < BondMaturity
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BondMaturity |
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The maturity date of the bond. |
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Date |
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BondMaturity > BondDated |
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BondStubDates |
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Only needed if the bond has an odd first or last period. |
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Array of Dates |
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First Coupon Date: Date that the first coupon is paid (if bond does not have an odd first period, leave blank). |
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F.C.D > BondDated |
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Penultimate Coupon Date: Date that the penultimate coupon is paid (if bond does not have an odd last period, leave blank). |
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P.C.D > Bond Dated |
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Notional |
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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. |
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Double
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Coupon |
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Defines the coupon method to be used. Can be set to zero if required. |
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Double |
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Frequency |
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The frequency of the coupon. |
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Enumerated Constant
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1 - Annual |
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AccrualBasis |
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Basis for determining coupon amounts and accrued interest. |
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Enumerated Constant |
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1 - Act/Act (actual) |
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BusDayConv |
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Business day convention. Used to determine the start and end date of each coupon payment period. |
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Enumerated Constant |
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1 - No Adjustment |
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InterpMethod |
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Method used to calculate rates and discount factors from the supplied zero curve. |
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Enumerated Constant |
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1 - Discount Factors |
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ZeroCurve |
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The zero curve that is used to project and discount cash flows. |
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Curve |
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Holidays |
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Schedule of non-business days (excluding weekends). |
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Date Range |
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Leave blank if not applicable |
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Output |
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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. |
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Enumerated Constant |
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0 - All ten outputs |
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Function Outputs |
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Output |
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Description |
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Option Value |
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The fair value of the option. |
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Delta |
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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. |
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Gamma |
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Defined here as the second derivative of the option value with respect to a parallel shift in the zero curve. |
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Theta |
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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. |
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Vega |
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Defined as the sensitivity of option value with respect to volatility. This is estimated by revaluing the option using an incremented volatility input. |
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Clean Price (Option Inclusive) |
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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. |
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Dirty Price (Option Inclusive) |
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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. |
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Clean Price (Option Exclusive) |
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The clean price for the underlying straight bond is computed as the straight bond dirty price less accrued interest. |
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Dirty Price (Option Exclusive) |
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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. |
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Accrued Interest |
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Computed using the same method that is used to compute accrued interest for a straight bond. |
See Also |
Copyright 2013 Hedgebook Ltd.