Fixed to Free Floating Rate Bond

Description

This template allows you to model bond's like investment products determined by two series of scheduled coupons. The first coupons series is fixed, while the second series is floating: coupons linked to the a transformation of the performance of the underlying interest rate. This template allows to describe the floating rate transformation and as well optional floors and caps. At the maturity, the bond pays the last coupon and repays the 100% of principal (or the remaining capital in case of capital amortization). With this template you are able to price a bond leg by specifying principal payments dates and related day conventions adjustments (market, business days, day count conventions) and optionally the capital amortization schedule. This template allows also to optionally specify an early redemption style: the bond can either be callable (the issuer has the faculty to redeem the issue) or puttable (the contract holder has the faculty to exit the contract).

Customizables Attributes

Bond

Maturity Date Date at which the principal is payed back.
Currency The Currency in which the product pays.
Issuer The name of entity issuing the security.
Nominal Nominal value of debit.
Amortization % (from Float Cpn) Description not available
Callability Specifies which counterparty has the ability of early terminating the contract. Set 'Callable' if the issuer has this faculty, or 'Puttable' if the faculty is left to the contract's holder.
Callability From The callability/puttability is exercitable from the date specified here.
Day Count Conv. Day count conventions define how many days must be considered between two coupons payments dates or from the valuation date to the next payment date (see also the difference between clean price and dirty price of a bond) to calculate the accrued interest. The conventions are : Thirty/360: uses 30 days in a month and 360 days in a year for calculating interest payments; Actual/365: each month is treated normally and the year is assumed to be 365 days. For example, in a period from February 1, 2005 to April 1, 2005, the Factor is considered to be 59 days divided by 365; Actual/365: indicates the actual number of days in the period for calculating interest divided by 365. If any part of that period of calculation of interest fall in a leap year, the rate is calculated as the sum of: - actual number of days in that part of the interest calculation period falling in a leap year divided by 366; - actual number of days in that part of the interest calculation period falling in a non-leap year divided by 365.
Date Rolling Conv. Date rolling conventions are a series of rules that indicate which date to consider when a payment date or a date used to calculate accrual interest falls into a holiday according to a business day calendar. Supported conventions are: Following: the payment date is rolled to the next business day; Modified following: the payment date is rolled to the next business day, unless doing so would cause the payment to be in the next calendar month, in which case the payment date is rolled to the previous business day. Many institutions have month-end accounting procedures that necessitate this; Preceding: the payment date is rolled to the previous business day; Modified business day: the payment date is rolled to the previous business day, unless doing so would cause the payment to be in the previous calendar month, in which case the payment date is rolled to the next business day. Many institutions have month-end accounting procedures that necessitate this; Unadjusted: paid on the actual day, even if it is a non-business day.
Recovery Rate If set to 'Issuer' a recovery rate of 40% or 20% will be used depending on the seniorty level of the Issuers' CDS spreads. Otherwise a user defined recovery rate will be used.
Custom Rec.Rate Allows to define a custom recovery rate. It is used when Credit Ranking is set to 'Custom'.
Effective Date The Effective Date is the Date on which the contract takes effect: usually the date on which first payment defined in the contract takes place.

Fixed Coupon

First Coupon Date The first coupon payment date following the initial settlement date.
Frequency Frequency of payments: actually we support daily, weekly, bi-weekly, monthly, Quarterly, Semi-Annual and Annual frequencies.
Fixed Coupon Rate The Fixed rate is the (annual) rate paid by the fixed leg of a swap or provides of a bond. It can be either a constant (to do that enter a single value) or a "step-up" or "step down" sequence (to do that enter as many values as the number of payments).

Floating Coupon

First Coupon Date The first floating coupon payment date following the initial settlement date.
Frequency Frequency of payments: actually we support daily, weekly, bi-weekly, monthly, Quarterly, Semi-Annual and Annual frequencies.
Reset Type Reset type specifies the fixing rules for the floating rate. In-Advance means that the floating (interest) rate is calculated at the beginning of the period and paid at the end. In-Arrears means that the floating (interest) rate is calculated and paid at the end of the period.
Days Before Reset It is the number of days to subtract to the reset dates. Usually, if not specified into the contract, the convention is to subtract two days.
Rate Expression This field describes the floating rate indexing expression in terms of x1 which is the valuation date of the rate. You can enter any algebraic expression in use the function FwdRate(x1;maturity) to calculate any bond maturity. For example expression 'FwdRate(x1;.25)' represents the 3 months xibor and expression 'FwdRate(x1;10)' is the 10 year CMS.
Rate Bounds Defines how the floating rate is used in the payoff by taking into account floor, cap and collar type options.
Floor Level It is the exercise price for a call or a put option. In the case of interest rate options like cap, it is called strike rate. In case of a swaption, it represents the fixed rate received or paid by the fixed leg of the underlying swap.
Cap Level It is the exercise price for a call or a put option. In the case of interest rate options like cap, it is called strike rate. In case of a swaption, it represents the fixed rate received or paid by the fixed leg of the underlying swap.

Market Data

Custom Liquidity Spread Enter a custom liquidity spread for this contract. The cash-flows will be subjected to an additional discounting based on the entered spread.