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RQuantLib (version 0.4.3)

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

"ConvertibleFloatingCouponBond"(bondparams, iborindex, spread, process, dateparams)
"ConvertibleFixedCouponBond"(bondparams, coupon, process, dateparams)
"ConvertibleZeroCouponBond"(bondparams, process, dateparams)

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.

Value

The ConvertibleFloatingCouponBond function returns an object of class ConvertibleFloatingCouponBond (which inherits from class Bond). It contains a list with the following components:The ConvertibleFixedCouponBond function returns an object of class ConvertibleFixedCouponBond (which inherits from class Bond). It contains a list with the following components:The ConvertibleZeroCouponBond function returns an object of class ConvertibleZeroCouponBond (which inherits from class Bond). It contains a list with the following components:

Details

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

References

http://quantlib.org/ for details on QuantLib.

Examples

Run this code
#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)

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