4.16 Bond.help

Octarisk Class: object = Bond(id)

Octarisk Class: object = Bond()

Class for setting up various Bond objects. Cash flows are generated specific for each Bond sub type and subsequently discounted to calculate the Bond value. All bonds can have embedded options (Option pricing according to Hull-White model).

• FRB: Fixed Rate Bond
• FRN: Floating Rate Note: Calculate CF Values based on forward rates of a given reference curve.
• ZCB: Zero Coupon Bond
• ILB: Inflation Linked Bond
• CDS: Credit Default Swaps
• CASHFLOW: Cash flow instruments. Custom cash flow dates and values are discounted.
• SWAP_FIXED: Swap fixed leg
• SWAP_FLOATING: Swap floating leg
• FRN_CMS_SPECIAL: Special type floating rate notes (capitalized, average, min, max) based on CMS rates
• CMS_FLOATING: Floating leg based on CMS rates
• FRA: Forward Rate Agreement
• FVA: Forward Volatility Agreement
• FRN_FWD_SPECIAL: Averaging FRN: Average forward or historical rates of cms_sliding period
• STOCHASTICCF: Stochastic cash flow instrument (cash flows values are derived from an empirical cash flow distribution)

In the following, all methods and attributes are explained and a code example is given.

Methods for Bond object obj:

• Bond(id) or Bond(): Constructor of a Bond object. id is optional and specifies id and name of new object.
• obj.set(attribute,value): Setter method. Provide pairs of attributes and values. Values are checked for format and constraints.
• obj.get(attribute): Getter method. Query the value of specified attribute.
• obj.calc_value(valuation_date,scenario, discount_curve)
• obj.calc_value(valuation_date,scenario, discount_curve, call_schedule, put_schedule): Calculate the net present value of cash flows of Bonds (including pricing of embedded options)
• obj.rollout(scenario, valuation_date): used for FRB and CASHFLOW instruments
• obj.rollout(scenario, valuation_date, reference_curve, vola_surface): used for CMS_FLOATING or FRN_SPECIAL
• obj.rollout(scenario, reference_curve, valuation_date, vola_surface): used for FRN, FRA, FVA, SWAP_FLOATING
• obj.rollout(scenario,valuation_date, psa_curve, psa_factor_surface, ir_shock_curve): used for FAB with prepayments
• obj.rollout(scenario,valuation_date, inflation_expectation_curve, historical_rates, consumer_price_index): used for ILB
• obj.rollout(scenario,valuation_date, riskfactor, cashflow_surface): used for Stochastic CF instruments
• obj.rollout(scenario,valuation_date, hazard_curve, reference_asset,reference_curve): used for CDS Cash flow rollout for Bonds
• obj.calc_sensitivities(valuation_date,discount_curve, reference_curve) Calculate analytical and numerical sensitivities for the given Bond instrument.
• obj.calc_key_rates(valuation_date,discount_curve) Calculate key rate sensitivities for the given Bond instrument.
• obj.calc_spread_over_yield(valuation_date,scenario, discount_curve) or
• obj.calc_spread_over_yield(valuation_date,scenario, discount_curve, call_schedule, put_schedule) Calibrate spread over yield in order to match the Bond price with the market price. The interest rate spread will be used for further pricing.
• obj.calc_yield_to_mat(valuation_date): Calculate yield to maturity for given cash flow structure.
• obj.getValue(scenario): Return Bond value for given scenario. Method inherited from Superclass Instrument
• Bond.help(format,returnflag): show this message. Format can be [plain text, html or texinfo]. If empty, defaults to plain text. Returnflag is boolean: True returns documentation string, false (default) returns empty string. [static method]

Attributes of Bond objects:

• id: Instrument id. Has to be unique identifier. (Default: empty string)
• name: Instrument name. (Default: empty string)
• description: Instrument description. (Default: empty string)
• value_base: Base value of instrument of type real numeric. (Default: 0.0)
• currency: Currency of instrument of type string. (Default: ’EUR’) During instrument valuation and aggregation, FX conversion takes place if corresponding FX rate is available.
• asset_class: Asset class of instrument. (Default: ’derivative’)
• type: Type of instrument, specific for class. Set to ’Bond’.
• value_stress: Line vector with instrument stress scenario values.
• value_mc: Line vector with instrument scenario values. MC values for several timestep_mc are stored in columns.
• timestep_mc: String Cell array with MC timesteps. If new timesteps are set, values are automatically appended.

For illustration see the following example: A 9 month floating rate note instrument will be calibrated and priced. The resulting spread over yield value (0.00398785481397732), base value (99.7917725092950) and effective duration (3.93109370316470e-005)is retrieved:

disp('Pricing Floating Rate Bond Object and calculating sensitivities')
b = Bond();
b = b.set('Name','Test_FRN','coupon_rate',0.00,'value_base',99.7527, ...
'coupon_generation_method','backward','compounding_type','simple');
b = b.set('maturity_date','30-Mar-2017','notional',100, ...
'compounding_type','simple','issue_date','21-Apr-2011');
b = b.set('term',3,'term_unit','months','last_reset_rate',-0.0024,'sub_Type','FRN','spread',0.003);
r = Curve();
r = r.set('id','REF_IR_EUR','nodes',[30,91,365,730], ...
'rates_base',[0.0001002740,0.0001002740,0.0001001390,0.0001000690], ...
'method_interpolation','linear');
b = b.rollout('base',r,'30-Jun-2016');
c = Curve();
c = c.set('id','IR_EUR','nodes',[30,90,180,365,730], ...
'rates_base',[0.0019002740,0.0019002740,0.0019002301,0.0019001390,0.001900069], ...
'method_interpolation','linear');
b = b.set('clean_value_base',99.7527,'spread',0.003);
b = b.calc_spread_over_yield('30-Jun-2016',c);
b.get('soy')
b = b.calc_value('30-Jun-2016','base',c);
b.getValue('base')
b = b.calc_sensitivities('30-Jun-2016',c,r);
b.get('eff_duration')

Dependencies of class: