Bond Calculations and Methodology

We are following the SEBI and RBI guidelines on the valuation of money market and debt securities.

https://www.sebi.gov.in/legal/circulars/sep-2019/valuation-of-money-market-and-debt-securities_44383.html

Calculation Parameters

Parameter	Input	Description
Calculation Type	EAY, BEY, MMY	EAY: Effective Annual Yield, or annualized yield BEY: Bond Equivalent Yield, for example semi-annual yield if coupon is paid twice a year MMY: Money market yield. This is a simple arithmetic yield
Termination Type	maturity, put, call	Cashflows are computed till the specified termination, and yield/price is computed accordingly
Call/Put Date	Date	Applicable for callable or puttable bonds, used to override default
Benchmark Rate	Rate	Applicable only for floating rate bonds. This is used to decide future coupon payments in the cashflows (computed using input benchmark + spread defined on term sheet)

Defaults

The system chooses default in the calculator based on the following logic

Corporate Bonds

If the time to maturity is greater than 1 year:
1. Coupon: Act/Act
2. DCF: Act/365
3. Calculation Type: EAY
If the time to maturity is under one year and there are no remaining coupons:
1. Coupon: NA
2. DCF: Act/Act
3. Calculation Type: MMY
If the time to maturity is under one year and a coupon is remaining:
1. Coupon: Act/Act
2. DCF: Act/365
3. Calculation Type: EAY

Money Market Bonds

Coupon: NA
DCF: Act/Act
Calculation Type: MMY

Government Bonds

Default
1. Coupon: 30/360
2. DCF: 30/360
3. Calculation Type: BEY
If the time to maturity is under one year and no coupons are left:
1. Coupon - NA
2. DCF - Act/Act
3. Calculation Type: MMY

Updated about 1 month ago