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oIRcallPutBond_BK( ) Function

Component

Resolution - IRO Pricing

 

 

Function Definition

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

Calculates the clean price and can also return various risk statistics.

 

 

IRO Types

Interest Rate Callable and Puttable Bonds.

 

 

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.

MeanReversion

 

Requires an estimate of the mean reversion rate.

 

Double

 

> 0

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

 

 

BondMaturity

 

The maturity date of the bond.

 

Date

 

 

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 rate 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

 

Used in the interpolation process that is required to compute the appropriate zero rates.

 

 

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 seven outputs
1 - Clean Price
2 -
Accrued Interest
3 - Dirty Price
4 -
Modified Duration
5 - Modified
Convexity
6 - Theta
7 - PVBP

 

 

 

 

 

 

 

Function Outputs

 

Output

 

Description

Clean Price

 

Computed as the derived dirty price less accrued interest.

Accrued Interest

 

As for straight bonds, accrued interest is computed based on the selected accrual basis and is independent from the valuation model being used.

Dirty Price

 

This is the price determined directly from the constructed interest rate lattice.

Modified Duration

 

For bonds with embedded options, this measure is often referred to as effective duration.

Modified Convexity

 

For bonds with embedded options, this measure is often referred to as effective convexity.

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.

PVBP

 

Measures the impact on bond price of a basis point increase in the entire yield curve.

 

 

 

See Also

Parameter Types

oIRcallPutBond_BDT1( ) Function

oIRcallPutBond_BDT2( ) Function

oIRcallPutBond_HL( ) Function

oIRcallPutBond_HW( ) Function

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