RQuantLib (version 0.4.24)

ConvertibleBond: Convertible Bond evaluation for Fixed, Floating and Zero Coupon

Description

The ConvertibleFixedCouponBond function setups and evaluates a ConvertibleFixedCouponBond using QuantLib's BinomialConvertibleEngine and BlackScholesMertonProcess The NPV, clean price, dirty price, accrued interest, yield and cash flows of the bond is returned. For detail, see test-suite/convertiblebond.cpp

The ConvertibleFloatingCouponBond function setups and evaluates a ConvertibleFixedCouponBond using QuantLib's BinomialConvertibleEngine and BlackScholesMertonProcess The NPV, clean price, dirty price, accrued interest, yield and cash flows of the bond is returned. For detail, see test-suite/convertiblebond.cpp

The ConvertibleZeroCouponBond function setups and evaluates a ConvertibleFixedCouponBond using QuantLib's BinomialConvertibleEngine and BlackScholesMertonProcess The NPV, clean price, dirty price, accrued interest, yield and cash flows of the bond is returned. For detail, see test-suite/convertiblebond.cpp.

Usage

# S3 method for default
ConvertibleFloatingCouponBond(bondparams, iborindex, spread, process, dateparams)
# S3 method for default
ConvertibleFixedCouponBond(bondparams, coupon, process, dateparams)
# S3 method for default
ConvertibleZeroCouponBond(bondparams, process, dateparams)

Value

The ConvertibleFloatingCouponBond function returns an object of class

ConvertibleFloatingCouponBond (which inherits from class

Bond). It contains a list with the following components:

NPV

net present value of the bond

cleanPrice

price price of the bond

dirtyPrice

dirty price of the bond

accruedAmount

accrued amount of the bond

yield

yield of the bond

cashFlows

cash flows of the bond

The ConvertibleFixedCouponBond function returns an object of class

ConvertibleFixedCouponBond (which inherits from class

Bond). It contains a list with the following components:

NPV

net present value of the bond

cleanPrice

price price of the bond

dirtyPrice

dirty price of the bond

accruedAmount

accrued amount of the bond

yield

yield of the bond

cashFlows

cash flows of the bond

The ConvertibleZeroCouponBond function returns an object of class

ConvertibleZeroCouponBond (which inherits from class

Bond). It contains a list with the following components:

NPV

net present value of the bond

cleanPrice

price price of the bond

dirtyPrice

dirty price of the bond

accruedAmount

accrued amount of the bond

yield

yield of the bond

cashFlows

cash flows of the bond

Arguments

bondparams

bond parameters, a named list whose elements are:

issueDate	a Date, the bond's issue date
maturityDate	a Date, the bond's maturity date
creditSpread	a double, credit spread parameter
	in the constructor of the bond.
conversitionRatio	a double, conversition ratio
	parameter in the constructor of the bond.
exercise	(Optional) a string, either "eu" for European
	option, or "am" for American option.
	Default value is 'am'.
faceAmount	(Optional) a double, face amount of the bond.
	Default value is 100.
redemption	(Optional) a double, percentage of the initial
	face amount that will be returned at maturity
	date. Default value is 100.
divSch	(Optional) a data frame whose columns are
	"Type", "Amount", "Rate", and "Date"
	corresponding to QuantLib's DividendSchedule.
	Default value is an empty frame, or no dividend.
callSch	(Optional) a data frame whose columns are "Price",
	"Type" and "Date" corresponding to QuantLib's
	CallabilitySchedule. Defaule is an empty frame,
	or no callability.

iborindex

a DiscountCurve object, represents an IborIndex

spread

a double vector, represents paramter 'spreads' in ConvertibleFloatingBond's constructor.

coupon

a double vector of coupon rate

process

arguments to construct a BlackScholes process and set up the binomial pricing engine for this bond.

underlying	a double, flat underlying term structure
volatility	a double, flat volatility term structure
dividendYield	a DiscountCurve object
riskFreeRate	a DiscountCurve object

dateparams

(Optional) a named list, QuantLib's date parameters of the bond.

settlementDays	(Optional) a double, settlement days.
	Default value is 1.
calendar	(Optional) a string, either 'us' or 'uk'
	corresponding to US Goverment Bond
	calendar and UK Exchange calendar.
	Default value is 'us'.
dayCounter	(Optional) a number or string,
	day counter convention.
	See Enum. Default value is 'Thirty360'
period	(Optional) a number or string,
	interest compounding interval. See Enum.
	Default value is 'Semiannual'.
businessDayConvention	(Optional) a number or string,
	business day convention.
	See Enum. Default value is 'Following'.

See the examples below.

Author

Khanh Nguyen for the inplementation; Dirk Eddelbuettel for the R interface; the QuantLib Group for QuantLib

Details

Please see any decent Finance textbook for background reading, and the QuantLib documentation for details on the QuantLib implementation.

References

https://www.quantlib.org/ for details on QuantLib.

Examples

# commented-out as it runs longer than CRAN likes
if (FALSE) {
#this follow an example in test-suite/convertiblebond.cpp
params <- list(tradeDate=Sys.Date()-2,
               settleDate=Sys.Date(),
               dt=.25,
               interpWhat="discount",
               interpHow="loglinear")


dividendYield <- DiscountCurve(params, list(flat=0.02))
riskFreeRate <- DiscountCurve(params, list(flat=0.05))

dividendSchedule <- data.frame(Type=character(0), Amount=numeric(0),
                            Rate = numeric(0), Date = as.Date(character(0)))
callabilitySchedule <- data.frame(Price = numeric(0), Type=character(0),
                          Date = as.Date(character(0)))

process <- list(underlying=50, divYield = dividendYield,
                rff = riskFreeRate, volatility=0.15)

today <- Sys.Date()
bondparams <- list(exercise="am", faceAmount=100,
                   divSch = dividendSchedule,
                   callSch = callabilitySchedule,
                   redemption=100,
                   creditSpread=0.005,
                   conversionRatio = 0.0000000001,
                   issueDate=as.Date(today+2),
                   maturityDate=as.Date(today+3650))
dateparams <- list(settlementDays=3,
                   dayCounter="ActualActual",
                   period = "Semiannual", calendar = "UnitedStates/GovernmentBond",
                   businessDayConvention="Following")

lengths <- c(2,4,6,8,10,12,14,16,18,20,22,24,26,28,30)
coupons <- c( 0.0200, 0.0225, 0.0250, 0.0275, 0.0300,
              0.0325, 0.0350, 0.0375, 0.0400, 0.0425,
              0.0450, 0.0475, 0.0500, 0.0525, 0.0550 )
marketQuotes <- rep(100, length(lengths))
curvedateparams <- list(settlementDays=0, period="Annual",
                   dayCounter="ActualActual",
                  businessDayConvention ="Unadjusted")
curveparams <- list(method="ExponentialSplinesFitting",
                    origDate = Sys.Date())
curve <- FittedBondCurve(curveparams, lengths, coupons, marketQuotes, curvedateparams)
iborindex <- list(type="USDLibor", length=6,
                  inTermOf="Month", term=curve)
spreads <- c()
#ConvertibleFloatingCouponBond(bondparams, iborindex, spreads, process, dateparams)


#example using default values
#ConvertibleFloatingCouponBond(bondparams, iborindex,spreads, process)

dateparams <- list(settlementDays=3,
                   period = "Semiannual",
                   businessDayConvention="Unadjusted")

bondparams <- list(
                   creditSpread=0.005, conversionRatio = 0.0000000001,
                   issueDate=as.Date(today+2),
                   maturityDate=as.Date(today+3650))
#ConvertibleFloatingCouponBond(bondparams, iborindex,
#spreads, process, dateparams)



#this follow an example in test-suite/convertiblebond.cpp
#for ConvertibleFixedCouponBond

#set up arguments to build a pricing engine.
params <- list(tradeDate=Sys.Date()-2,
               settleDate=Sys.Date(),
               dt=.25,
               interpWhat="discount",
               interpHow="loglinear")
times <- seq(0,10,.1)

dividendYield <- DiscountCurve(params, list(flat=0.02), times)
riskFreeRate <- DiscountCurve(params, list(flat=0.05), times)

dividendSchedule <- data.frame(Type=character(0), Amount=numeric(0),
                            Rate = numeric(0), Date = as.Date(character(0)))
callabilitySchedule <- data.frame(Price = numeric(0), Type=character(0),
                          Date = as.Date(character(0)))

process <- list(underlying=50, divYield = dividendYield,
                rff = riskFreeRate, volatility=0.15)

today <- Sys.Date()
bondparams <- list(exercise="am", faceAmount=100, divSch = dividendSchedule,
                   callSch = callabilitySchedule, redemption=100,
                   creditSpread=0.005, conversionRatio = 0.0000000001,
                   issueDate=as.Date(today+2),
                   maturityDate=as.Date(today+3650))
dateparams <- list(settlementDays=3,
                   dayCounter="Actual360",
                   period = "Once", calendar = "UnitedStates/GovernmentBond",
                   businessDayConvention="Following"
                   )
coupon <- c(0.05)
ConvertibleFixedCouponBond(bondparams, coupon, process, dateparams)

#example with default value
ConvertibleFixedCouponBond(bondparams, coupon, process)

dateparams <- list(settlementDays=3,
                   dayCounter="Actual360")
ConvertibleFixedCouponBond(bondparams, coupon, process, dateparams)

bondparams <- list(creditSpread=0.005, conversionRatio = 0.0000000001,
                   issueDate=as.Date(today+2),
                   maturityDate=as.Date(today+3650))
ConvertibleFixedCouponBond(bondparams, coupon, process, dateparams)



#this follow an example in test-suite/convertiblebond.cpp
params <- list(tradeDate=Sys.Date()-2,
               settleDate=Sys.Date(),
               dt=.25,
               interpWhat="discount",
               interpHow="loglinear")
times <- seq(0,10,.1)


dividendYield <- DiscountCurve(params, list(flat=0.02), times)
riskFreeRate <- DiscountCurve(params, list(flat=0.05), times)

dividendSchedule <- data.frame(Type=character(0), Amount=numeric(0),
                            Rate = numeric(0), Date = as.Date(character(0)))
callabilitySchedule <- data.frame(Price = numeric(0), Type=character(0),
                          Date = as.Date(character(0)))

process <- list(underlying=50, divYield = dividendYield,
                rff = riskFreeRate, volatility=0.15)

today <- Sys.Date()
bondparams <- list(exercise="am", faceAmount=100, divSch = dividendSchedule,
                   callSch = callabilitySchedule, redemption=100,
                   creditSpread=0.005, conversionRatio = 0.0000000001,
                   issueDate=as.Date(today+2),
                   maturityDate=as.Date(today+3650))
dateparams <- list(settlementDays=3,
                   dayCounter="Actual360",
                   period = "Once", calendar = "UnitedStates/GovernmentBond",
                   businessDayConvention="Following"
                   )

ConvertibleZeroCouponBond(bondparams, process, dateparams)

#example with default values
ConvertibleZeroCouponBond(bondparams, process)


bondparams <- list(creditSpread=0.005,
                   conversionRatio=0.0000000001,
                   issueDate=as.Date(today+2),
                   maturityDate=as.Date(today+3650))

dateparams <- list(settlementDays=3, dayCounter='Actual360')
ConvertibleZeroCouponBond(bondparams, process, dateparams)
ConvertibleZeroCouponBond(bondparams, process)
}