Lecture

Market Conventions: Day-Count Conventions

Graph Chat

Chat with Graph Search

Ask any question about EPFL courses, lectures, exercises, research, news, etc. or try the example questions below.

DISCLAIMER: The Graph Chatbot is not programmed to provide explicit or categorical answers to your questions. Rather, it transforms your questions into API requests that are distributed across the various IT services officially administered by EPFL. Its purpose is solely to collect and recommend relevant references to content that you can explore to help you answer your questions.

Description

This lecture covers market conventions related to interest rate models, including day-count conventions such as actual/365, actual/360, and 30/360. It explains how time is measured in years and calculates year fractions between calendar dates. The lecture also discusses accrued interest, clean price, and dirty price of coupon bonds.

Official source

Ontological neighbourhood

Business

Finance: Financial risk management

Related concepts (26)

Dirty price

The price of a bond is the present value of its future cash-flows. To avoid the impact of the next coupon payment on the price of a bond, this cash flow is excluded from the price of the bond and is called the accrued interest. In finance, the dirty price is the price of a bond including any interest that has accrued since issue of the most recent coupon payment. This is to be compared with the clean price, which is the price of a bond excluding the accrued interest.

Clean price

In finance, the clean price is the price of a bond excluding any interest accrued since bond's issuance and the most recent coupon payment. Comparatively, the dirty price is the price of a bond including the accrued interest. Therefore, Clean Price = Dirty Price − Accrued Interest In Bloomberg Terminal or Reuters, bond prices are quoted using the clean price. Traders tend to think of bonds in terms of their clean prices. Clean prices are more stable over time than dirty prices.

Interest rate swap

In finance, an interest rate swap (IRS) is an interest rate derivative (IRD). It involves exchange of interest rates between two parties. In particular it is a "linear" IRD and one of the most liquid, benchmark products. It has associations with forward rate agreements (FRAs), and with zero coupon swaps (ZCSs). In its December 2014 statistics release, the Bank for International Settlements reported that interest rate swaps were the largest component of the global OTC derivative market, representing 60%, with the notional amount outstanding in OTC interest rate swaps of

381 trillion, and the gross market value of

14 trillion.

Corporate bond

A corporate bond is a bond issued by a corporation in order to raise financing for a variety of reasons such as to ongoing operations, M&A, or to expand business. The term is usually applied to longer-term debt instruments, with maturity of at least one year. Corporate debt instruments with maturity shorter than one year are referred to as commercial paper. The term "corporate bond" is not strictly defined. Sometimes, the term is used to include all bonds except those issued by governments in their own currencies.

Government bond

A government bond or sovereign bond is a form of bond issued by a government to support public spending. It generally includes a commitment to pay periodic interest, called coupon payments, and to repay the face value on the maturity date. For example, a bondholder invests

20,000, called face value or principal, into a 10-year government bond with a 10% annual coupon; the government would pay the bondholder 10% interest (

2000 in this case) each year and repay the $20,000 original face value at the date of maturity (i.

Related lectures (59)

Interest Rates: Term Structure and Valuing Bonds

Explores interest rates, term structures, bond valuation, and credit risk impact on bond prices.

Understanding the Yield Curve

Explores the yield curve's significance in predicting economic trends and recessions based on the relationship between short- and long-term Treasury bond yields.

Principles of Finance: Interest Rates and Bond Valuation

Explores finance principles, interest rates, bond valuation, and sustainable investing.

Interest Rates and Bonds

Explores interest rates, bonds, yield curves, and factors influencing interest rates in reality.

Understanding Interest Rates: Term Structure and Yield Curve

Explores interest rates, term structure, and yield curve, illustrating their relation and impact on economic forecasts.