How to calculate bond yield

[Enrico Gargiulo]

Hi all,

 

I'm a beginner in using Quantlib.

I need to calculate yields on some type of bonds, for example: bot, btp, ecc.

 

Now I've a first problem creating an object simulating a bot (ZeroCouponBond), I don't know what type of discount curve to use.

 

Is there somebody that can help me?

 

Thanks

Enrico

 

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[Luigi Ballabio]

On Thu, 2007-04-19 at 15:28 +0200, Enrico Gargiulo wrote:
> I'm a beginner in using Quantlib.
> I need to calculate yields on some type of bonds, for example: bot,
> btp, ecc.
>  
> Now I've a first problem creating an object simulating a bot
> (ZeroCouponBond), I don't know what type of discount curve to use.

Enrico,
        the discount curve is only used if you want to calculate a theoretical
price based on such curve. For price/yield calculations, you don't need
to provide one---the yield will be used for discounting instead.

Later,
        Luigi


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Green's Law of Debate:
Anything is possible if you don't know what you're talking about.



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[Enrico Gargiulo]

Enrico,
        the discount curve is only used if you want to calculate a
theoretical price based on such curve. For price/yield calculations, you
don't need to provide one---the yield will be used for discounting instead.

Later,
        Luigi


----------------------------------------

Green's Law of Debate:
Anything is possible if you don't know what you're talking about.


Luigi,
my problem is that when I create the object without curve I have the
following results:

        Real faceAmount = 98.0;
        Date issueDate(30, April, 2006);
        Date maturityDate(30, April, 2007);
        Date deliveryDate(18, April, 2007);
        Integer settlementDays = 3;
        Calendar calendar = NullCalendar();
        DayCounter dayCountConvention = Actual365Fixed();
        BusinessDayConvention businessDayConvention = Unadjusted;
        Real redemption = 100.0;
       
        Date settlementDate(18, April, 2007);
       
        ZeroCouponBond bot(faceAmount, issueDate, maturityDate,
settlementDays,
            dayCountConvention, calendar, businessDayConvention,
redemption);
           
           
        std::cout << "Underlying bond clean price: " << bot.cleanPrice() <<
std::endl;

The results are:

        Underlying bond clean price: no discounting term structure set

Where is the mistake?

Thanks
Enrico


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[Guowen Han]

Looks like the term structure is missing.  ZeroCouponBond use default term structure which is null I guess.

Guowen

"Enrico Gargiulo" <[hidden email]>
Sent by: [hidden email]

04/19/2007 11:06 AM

To	"'Luigi Ballabio'" <[hidden email]>
cc	[hidden email]
Subject	Re: [Quantlib-users] How to calculate bond yield

Enrico,
                the discount curve is only used if you want to calculate a
theoretical price based on such curve. For price/yield calculations, you
don't need to provide one---the yield will be used for discounting instead.

Later,
                Luigi


----------------------------------------

Green's Law of Debate:
Anything is possible if you don't know what you're talking about.


Luigi,
my problem is that when I create the object without curve I have the
following results:

       Real faceAmount = 98.0;
       Date issueDate(30, April, 2006);
       Date maturityDate(30, April, 2007);
       Date deliveryDate(18, April, 2007);
       Integer settlementDays = 3;
       Calendar calendar = NullCalendar();
       DayCounter dayCountConvention = Actual365Fixed();
       BusinessDayConvention businessDayConvention = Unadjusted;
       Real redemption = 100.0;
       
       Date settlementDate(18, April, 2007);
       
       ZeroCouponBond bot(faceAmount, issueDate, maturityDate,
settlementDays,
           dayCountConvention, calendar, businessDayConvention,
redemption);
           
           
       std::cout << "Underlying bond clean price: " << bot.cleanPrice() <<
std::endl;

The results are:

                Underlying bond clean price: no discounting term structure set

Where is the mistake?

Thanks
Enrico


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[Luigi Ballabio]

On Thu, 2007-04-19 at 17:06 +0200, Enrico Gargiulo wrote:

> Luigi,
> my problem is that when I create the object without curve I have the
> following results:
>
>         std::cout << "Underlying bond clean price: " << bot.cleanPrice() <<
> std::endl;
>
> The results are:
>
> Underlying bond clean price: no discounting term structure set
>
> Where is the mistake?

btp.cleanPrice(), without any arguments, calculates the theoretical
price on a given term structure. But I was under the impression that you
wanted to calculated the yield given a price, or viceversa. For
calculating the yield, you can use

btp.yield(price, compounding);

(where compounding is the way you compound the yield---most likely
you'll use Simple.) For calculating the price, you can use

btp.cleanPrice(yield, compounding);

Neither of them requires a term structure as far as I recall (and both
of them will take and return yields as decimal numbers, i.e., 0.05 for a
5% yield.)

Hope this helps,
        Luigi


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