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Questions about Schedule and FixedRateBond

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Chris Rohlfs

Questions about Schedule and FixedRateBond

Dear QuantLib Users,

I'm new to C++, QuantLib, and finance generally, and I apologize for asking some fairly simple questions. They are about institutional details with bonds and the following code in Bonds.cpp:

// Fixed 4.5% US Treasury Note

Schedule fixedBondSchedule(Date(15, May, 2007),

Date(15,May,2017), Period(Semiannual),

UnitedStates(UnitedStates::GovernmentBond),

Unadjusted, Unadjusted, DateGeneration::Backward, false);

FixedRateBond fixedRateBond(

settlementDays,

faceAmount,

fixedBondSchedule,

std::vector<Rate>(1, 0.045),

ActualActual(ActualActual::Bond),

ModifiedFollowing,

100.0, Date(15, May, 2007));

Why are the business day corrections "Unadjusted" for the Schedule class and "ModifiedFollowing" for the FixedRateBond class? Do these differences have to do with to the interest accrual versus delivery dates?

Also, I've seen a treasury note that was issued on April 30th and had a coupon date of October 31st (even though 10/30 was a weekday), and I imagine that it's standard for notes issued at the end of the month to deliver coupons at the end of the month, even if the day of month doesn't match up--is that right? Does this payment schedule take that end of month feature into account?

Finally, could anyone recommend sources that describe (a) the exact role of each input in the Schedule & other classes and (b) exactly what the date conventions are for T-notes?

Thank you very much for your time,

Chris

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Chris Rohlfs

Re: Questions about Schedule and FixedRateBond

Dear QuantLib users,

Am I correct that a typical U.S. Treasury note would require the following modifications to the Schedule from the example in Bonds.cpp?:

BusinessDayConvention convention=Following,

BusinessDayConvention terminationDateConvention=Following, and

bool endOfMonth = true

and also BusinessDayConvention paymentConvention=Following in the FixedRateBond definition?

so that, we might have a U.S. treasury note (CUSIP 912828SR2) that looked like:

Schedule bondSched1(Date(30,April,2012),Date(30,April,2014),

Period(Semiannual),UnitedStates(UnitedStates::GovernmentBond),

Following,Following,DateGeneration::Backward,true);

FixedRateBond myBond(settlementDays,faceAmount,bondSched1,

vector<Rate>(1, 0.0025), ActualActual(ActualActual::Bond),

Following, 100.0, Date(30,April,2012));

I'm sorry again to bother you all, but I thought I understood T-note payment schedules and was very surprised to see the sample code for a U.S. Treasury note set BusinessDayConvention equal to "Unadjusted" and EndOfMonth equal to false. And also, I may be wrong, but it was my understanding that T-notes used Following and not ModifiedFollowing as the BusinessDayConvention.

Is there something I'm misunderstanding about the coding or the institutional details of T-notes or some other reason (perhaps for other calculations) that we see Unadjusted, false, and ModifiedFollowing in the example for a U.S. treasury?

Thanks again for your help.

Best regards,

Chris

On Tue, May 22, 2012 at 10:31 PM, Chris Rohlfs <[hidden email]> wrote:

Dear QuantLib Users,

I'm new to C++, QuantLib, and finance generally, and I apologize for asking some fairly simple questions. They are about institutional details with bonds and the following code in Bonds.cpp:

// Fixed 4.5% US Treasury Note
Schedule fixedBondSchedule(Date(15, May, 2007),
Date(15,May,2017), Period(Semiannual),
UnitedStates(UnitedStates::GovernmentBond),

Unadjusted, Unadjusted, DateGeneration::Backward, false);

FixedRateBond fixedRateBond(
settlementDays,
faceAmount,

fixedBondSchedule,
std::vector<Rate>(1, 0.045),
ActualActual(ActualActual::Bond),
ModifiedFollowing,
100.0, Date(15, May, 2007));

Why are the business day corrections "Unadjusted" for the Schedule class and "ModifiedFollowing" for the FixedRateBond class? Do these differences have to do with to the interest accrual versus delivery dates?

Also, I've seen a treasury note that was issued on April 30th and had a coupon date of October 31st (even though 10/30 was a weekday), and I imagine that it's standard for notes issued at the end of the month to deliver coupons at the end of the month, even if the day of month doesn't match up--is that right? Does this payment schedule take that end of month feature into account?

Finally, could anyone recommend sources that describe (a) the exact role of each input in the Schedule & other classes and (b) exactly what the date conventions are for T-notes?

Thank you very much for your time,
Chris

Luigi Ballabio

Re: Questions about Schedule and FixedRateBond

On Wed, May 23, 2012 at 2:44 PM, Chris Rohlfs <[hidden email]> wrote:

> Dear QuantLib users,
>
> Am I correct that a typical U.S. Treasury note would require the following
> modifications to the Schedule from the example in Bonds.cpp?:
>
> BusinessDayConvention convention=Following,
> BusinessDayConvention terminationDateConvention=Following, and
> bool endOfMonth = true
>
> and also BusinessDayConvention paymentConvention=Following in the
> FixedRateBond definition?

Hi Chris,
I'm not familiar with the typical U.S. Treasury rules, but the
above do match those you sketched better than the ones in the example.
Let me know if you get confirmation so I can fix it.

As for the input for schedule and other classes, you're right about
the lack of documentation but I'm afraid I don't have much time to
cover them now. Is there anything in particular that it's not clear?

Luigi

------------------------------------------------------------------------------
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Exclusive live event will cover all the ways today's security and
threat landscape has changed and how IT managers can respond. Discussions
will include endpoint security, mobile security and the latest in malware
threats. http://www.accelacomm.com/jaw/sfrnl04242012/114/50122263/
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Chris Rohlfs

Re: Questions about Schedule and FixedRateBond

Luigi,

Thank you very much for your response! That's good to know. I just wanted to make sure that there wasn't some reason that I was missing for doing it the other way.

Best regards,

Chris

On Mon, May 28, 2012 at 8:35 AM, Luigi Ballabio <[hidden email]> wrote:

On Wed, May 23, 2012 at 2:44 PM, Chris Rohlfs <[hidden email]> wrote:
> Dear QuantLib users,
>
> Am I correct that a typical U.S. Treasury note would require the following
> modifications to the Schedule from the example in Bonds.cpp?:
>
> BusinessDayConvention convention=Following,
> BusinessDayConvention terminationDateConvention=Following, and
> bool endOfMonth = true
>
> and also BusinessDayConvention paymentConvention=Following in the
> FixedRateBond definition?

Hi Chris,
I'm not familiar with the typical U.S. Treasury rules, but the
above do match those you sketched better than the ones in the example.
Let me know if you get confirmation so I can fix it.

As for the input for schedule and other classes, you're right about
the lack of documentation but I'm afraid I don't have much time to
cover them now. Is there anything in particular that it's not clear?

Luigi