HWTree_AccrualConv() function

HWTree_AccrualConv() function

HWTree_AccrualConv(argument list…)

This functions prices an accrual bonds which is convertible at the PAYERS option into a normal pay bond (i.e. coupons at regular frequencies, instead of accruing to a final maturity). The underlying bond may pay a varying coupon rate (e.g. step-up) and have a Bermudan style exercise schedule. The initial notional value is assumed to be $100. When the bond is converted, the difference between the accrued value and $100 is payable immediately, and afterwards the payments are as a normal (step-up) coupon bond, with the $100 notional payable at maturity. If the option is nver converted, the accrued value (interest plus principal) is payable only at maturity. The functions use the following arguments:

Argument	Description	Restrictions
Val_Date	valuation date (e.g. today)	valid Excel date number
Settle_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)
Coup_Dates	array of bond coupon dates	First element must be first coupon date of the bond (i.e. AFTER the issue date), and last element must be the maturity date of the bond. This is important as the bond is accruing with an initial notional of $100. Dates must be in ascending order, and consistent with the coupon frequency and maturity date.
Coup_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
Exercise_Array	an array of indicator values which tells us if the payer can convert to normal pay on this date	= 1 if convertible on a date = 0 if not convertible on a date
Notice_Days	minimum notice, in days, required to convert 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
Steps_per_Coupon	tree steps per fixed coupon period in the trinomial lattice	> 0 (typically 3 to 10) if there is only 1 exercise period remaining, and the time to exercise is short, a very high value such as 100 should be used, to ensure that the lattice is built