Complex Retractable Bonds (HW-Tree)

Complex Retractable Bonds (HW-Tree)

HWTree_RetractableBond(argument list…)

HWTree_RetractableBond_OptVal(argument list…)

These functions deal with the valuation of retractable bonds. The first values the pure (non-retractable) bond with the embedded bond option, while the second returns only the value of the embedded option. The underlying bond may pay a varying coupon rate (e.g. step-up) and have a non-level redemption price schedule. The functions use the following arguments:

Argument	Description	Restrictions
Valuation_Date	valuation date (e.g. today)	valid Excel date number
Settlement_Date	bond settlement date	valid Excel date number >= Valuation_Date
Maturity_Date	bond maturity date	valid Excel date number >= Settlement_Date
Freq	number of bond coupons per annum	1, 2, 4, or 12
DCB	day count basis	0 = 30/360 (US) 1 = act/act for CAD/US T-Bonds 2 = act/360 3 = act/365 4 = 30/360 (European)
Coupon_Dates	array of bond coupon dates	First element must be the last coupon date before the settlement date, or an even older coupon, and last element must be the maturity date of the bond. Dates must be in ascending order, and consistent with the coupon frequency and maturity date.
Coupon_Rates	array of bond coupon rates, as annualized rates, in decimal form (e.g. six percent entered as 0.06)	>= 0, and corresponding to the Coupon_Dates array
Retract_Prices	array of put prices per $100 par corresponding to Coupon_Dates array	> 0 if retractable on a date = 0 if not retractable on a date
Notice_Days	minimum notice, in days, required to retract the bond	>= 0
Zero_Dates	array of zero coupon curve dates	strictly ascending order The first date of this array must be Valuation_Date
Zero_Rates	array of continuously compounded riskless rates in decimal form (e.g. six percent entered as 0.06) corresponding to Zero_Dates	> 0
Short_Rate_Vol	annual standard deviation of the short rate of interest, in decimal form	> 0
Reversion_Rate	mean reversion rate of the short rate of interest, in decimal form	>= 0
OAS	parallel shift of the zero curve in decimal form
Bucket_Start	beginning of bucket for zero curve shifts	set to 0 if curve shift is not desired
Bucket_End	end of bucket for zero curve shift	>= Bucket_Start
Bucket_Shift	parallel shift of the zero curve between Bucket_Start and Bucket_End in decimal form	set to 0 if curve shock is not desired
Tree_Steps_per_Coupon	tree steps per fixed coupon period in the trinomial lattice	> 0 (typically 3 to 10)