instoptembnd
Construct bond with embedded option
Syntax
Description
creates a new instrument set containing Bond with embedded option instruments.InstSet
= instoptembnd(CouponRate
,Settle
,Maturity
,OptSpec
,Strike
,ExerciseDates
)
adds Bond with embedded option instruments to an existing instrument set.InstSet
= instoptembnd(InstSet
,CouponRate
,Settle
,Maturity
,OptSpec
,Strike
,ExerciseDates
)
uses additional name-value pairs in addition to the required arguments in the previous
syntax.InstSet
= instoptembnd(___,Name,Value
)
[
lists field meta-data for the Bond option instrument.FieldList
,ClassList
,TypeString
] = instoptembnd
Examples
Create a Bond With an Embedded Option
This example shows how to create a bond with an embedded option using the following data.
Settle = datetime(2007,1,1); Maturity = datetime(2010,1,1); CouponRate = 0.07; OptSpec = 'call'; Strike= 100; ExerciseDates= [datetime(2008,1,1) datetime(2010,1,1)]; AmericanOpt=1; Period = 1; InstSet = instoptembnd(CouponRate, ... Settle, Maturity, OptSpec, Strike, ExerciseDates,'AmericanOpt', AmericanOpt, ... 'Period', Period); % display the instrument instdisp(InstSet)
Index Type CouponRate Settle Maturity OptSpec Strike ExerciseDates Period Basis EndMonthRule IssueDate FirstCouponDate LastCouponDate StartDate Face AmericanOpt 1 OptEmBond 0.07 01-Jan-2007 01-Jan-2010 call 100 01-Jan-2008 01-Jan-2010 1 0 1 NaN NaN NaN NaN 100 1
Input Arguments
InstSet
— Instrument variable
structure
Instrument variable, specified only when adding Bond embedded option instruments to
an existing instrument set. For more information on the InstSet
variable, see instget
.
Data Types: struct
CouponRate
— Bond coupon rate
positive decimal value
Bond coupon rate, specified as a scalar or an
NINST
-by-1
decimal annual rate or
NINST
-by-1
cell array, where each element is a
NumDates
-by-2
cell array. The first column of
the NumDates
-by-2
cell array is dates and the
second column is associated rates. The date indicates the last day that the coupon rate
is valid.
Data Types: double
| cell
Settle
— Settlement date
datetime array | string array | date character vector
Settlement date, specified as a scalar or an
NINST
-by-1
vector using a datetime array, string
array, or date character vectors.
To support existing code, instoptembnd
also
accepts serial date numbers as inputs, but they are not recommended.
Maturity
— Maturity date
datetime array | string array | date character vector
Maturity date, specified as a scalar or an
NINST
-by-1
vector using a datetime array, string
array, or date character vectors.
To support existing code, instoptembnd
also
accepts serial date numbers as inputs, but they are not recommended.
OptSpec
— Definition of option
character vector with value 'call'
or
'put'
| cell array of character vectors with values 'call'
or
'put'
Definition of option, specified as a scalar or an
NINST
-by-1
cell array of character
vectors.
Data Types: char
Strike
— Option strike price values
nonnegative integer
Option strike price value, specified as a scalar or an
NINST
-by-1
or an
NINST
-by-NSTRIKES
depending on the type of option:
European option —
NINST
-by-1
vector of strike price values.Bermuda option —
NINST
by number of strikes (NSTRIKES
) matrix of strike price values. Each row is the schedule for one option. If an option has fewer thanNSTRIKES
exercise opportunities, the end of the row is padded withNaN
s.American option —
NINST
-by-1
vector of strike price values for each option.
Data Types: double
ExerciseDates
— Option exercise dates
datetime array | string array | date character vector
Option exercise dates, specified as scalar or an
NINST
-by-1
,
NINST
-by-2
, or
NINST
-by-NSTRIKES
vector using a datetime array,
string array, or date character vectors, depending on the type of option:
For a European option, use a
NINST
-by-1
vector of dates. For a European option, there is only oneExerciseDates
on the option expiry date.For a Bermuda option, use a
NINST
-by-NSTRIKES
vector of dates.For an American option, use a
NINST
-by-2
vector of exercise date boundaries. The option can be exercised on any date between or including the pair of dates on that row.
To support existing code, instoptembnd
also
accepts serial date numbers as inputs, but they are not recommended.
Name-Value Arguments
Specify optional pairs of arguments as
Name1=Value1,...,NameN=ValueN
, where Name
is
the argument name and Value
is the corresponding value.
Name-value arguments must appear after other arguments, but the order of the
pairs does not matter.
Before R2021a, use commas to separate each name and value, and enclose
Name
in quotes.
Example: InstSet =
instoptembnd(InstSet,CouponRate,Settle,Maturity,OptSpec,Strike,ExerciseDates,'Period',1,'AmericanOp',1)
AmericanOpt
— Option type
0
European/Bermuda (default) | integer with values 0
or 1
Option type, specified as the comma-separated pair consisting of
'AmericanOpt'
and a scalar or an
NINST
-by-1
positive integer flags with values:
0
— European/Bermuda1
— American
Data Types: double
Period
— Coupons per year
2
per year (default) | vector
Coupons per year, specified as the comma-separated pair consisting of
'Period'
and a scalar or an
NINST
-by-1
vector.
Data Types: double
Basis
— Day-count basis
0
(actual/actual) (default) | integer from 0
to 13
Day-count basis, specified as the comma-separated pair consisting of
'Basis'
and a scalar or an
NINST
-by-1
vector of integers.
0 = actual/actual
1 = 30/360 (SIA)
2 = actual/360
3 = actual/365
4 = 30/360 (PSA)
5 = 30/360 (ISDA)
6 = 30/360 (European)
7 = actual/365 (Japanese)
8 = actual/actual (ICMA)
9 = actual/360 (ICMA)
10 = actual/365 (ICMA)
11 = 30/360E (ICMA)
12 = actual/365 (ISDA)
13 = BUS/252
For more information, see Basis.
Data Types: double
EndMonthRule
— End-of-month rule flag
1
(in effect) (default) | nonnegative integer with values 0
or
1
End-of-month rule flag, specified as the comma-separated pair consisting of
'EndMonthRule'
and a scalar nonnegative integer or an
NINST
-by-1
vector. This rule applies only when
Maturity
is an end-of-month date for a month having 30 or fewer days.
0
= Ignore rule, meaning that a bond coupon payment date is always the same numerical day of the month.1
= Set rule on, meaning that a bond coupon payment date is always the last actual day of the month.
Data Types: double
IssueDate
— Bond issue date
datetime array | string array | date character vector
Bond issue date, specified as the comma-separated pair consisting of
'IssueDate'
and a scalar or an
NINST
-by-1
vector using a datetime array,
string array, or date character vectors.
To support existing code, instoptembnd
also
accepts serial date numbers as inputs, but they are not recommended.
FirstCouponDate
— Irregular first coupon date
datetime array | string array | date character vector
Irregular first coupon date, specified as the comma-separated pair consisting of
'FirstCouponDate'
and a scalar or an
NINST
-by-1
vector using a datetime array,
string array, or date character vectors.
To support existing code, instoptembnd
also
accepts serial date numbers as inputs, but they are not recommended.
When FirstCouponDate
and LastCouponDate
are both specified, FirstCouponDate
takes precedence in determining
the coupon payment structure. If you do not specify a
FirstCouponDate
, the cash flow payment dates are determined from
other inputs.
LastCouponDate
— Irregular last coupon date
datetime array | string array | date character vector
Irregular last coupon date, specified as the comma-separated pair consisting of
'LastCouponDate'
and a scalar or an
NINST
-by-1
vector using a datetime array,
string array, or date character vectors.
To support existing code, instoptembnd
also
accepts serial date numbers as inputs, but they are not recommended.
In the absence of a specified FirstCouponDate
, a specified
LastCouponDate
determines the coupon structure of the bond. The
coupon structure of a bond is truncated at the LastCouponDate
,
regardless of where it falls, and is followed only by the bond's maturity cash flow
date. If you do not specify a LastCouponDate
, the cash flow payment
dates are determined from other inputs.
StartDate
— Forward starting date of payments
datetime array | string array | date character vector
Forward starting date of payments (the date from which a bond cash flow is
considered), specified as the comma-separated pair consisting of
'StartDate'
and a scalar or an
NINST
-by-1
vector using a datetime array,
string array, or date character vectors. The StartDate
is the date
when a bond actually starts (that is, the date from which a bond's cash flows can be
considered). To make an option embedded bond instrument forward starting, specify this
date as a future date.
To support existing code, instoptembnd
also
accepts serial date numbers as inputs, but they are not recommended.
If you do not specify StartDate
, the effective start date is
the Settle
date.
Face
— Face value
100
(default) | NINST
-by-1
vector | NINST
-by-1
cell array
Face or par value, specified as the comma-separated pair consisting of
'Face'
and a scalar or an
NINST
-by-1
vector or an
NINST
-by-1
cell array where each element is a
NumDates
-by-2
cell array where the first
column is dates and the second column is associated face value. The date indicates the
last day that the face value is valid.
Note
Instruments without a Face
schedule are treated as either
vanilla bonds or stepped coupon bonds with embedded options.
Data Types: double
Output Arguments
InstSet
— Variable containing a collection of instruments
structure
Variable containing a collection of instruments, returned as a structure.
Instruments are broken down by type and each type can have different data fields. Each
stored data field has a row vector or string for each instrument. For more information
on the InstSet
variable, see instget
.
FieldList
— Name of each data field for Bond embedded option instrument
cell array of character vectors
Name of each data field for a Bond embedded option instrument, returned as an
NFIELDS
-by-1
cell array of character
vectors.
ClassList
— Data class for each field
cell array of character vectors
Data class for each field, returned as an
NFIELDS
-by-1
cell array of character vectors.
The class determines how arguments are parsed. Valid character vectors are
'dble'
, 'date'
, and 'char'
.
TypeString
— Type of instrument
character vector
Type of instrument, returned as a character vector. For a Bond embedded option
instrument, TypeString = 'OptEmBond'
.
More About
Vanilla Bond with Embedded Option
A vanilla coupon bond is a security representing an obligation to repay a borrowed amount at a designated time and to make periodic interest payments until that time.
The issuer of a bond makes the periodic interest payments until the bond matures. At maturity, the issuer pays to the holder of the bond the principal amount owed (face value) and the last interest payment. A vanilla bond with an embedded option is where an option contract has an underlying asset of a vanilla bond.
Stepped Coupon Bond with Callable and Puttable Features
A step-up and step-down bond is a debt security with a predetermined coupon structure over time.
With these instruments, coupons increase (step up) or decrease (step down) at specific times during the life of the bond. Stepped coupon bonds can have options features (call and puts).
Sinking Fund Bond with Call Embedded Option
A sinking fund bond is a coupon bond with a sinking fund provision.
This provision obligates the issuer to amortize portions of the principal prior to maturity, affecting bond prices since the time of the principal repayment changes. This means that investors receive the coupon and a portion of the principal paid back over time. These types of bonds reduce credit risk, since it lowers the probability of investors not receiving their principal payment at maturity.
The bond may have a sinking fund call option provision allowing the issuer to retire the sinking fund obligation either by purchasing the bonds to be redeemed from the market or by calling the bond via a sinking fund call, whichever is cheaper. If interest rates are high, then the issuer buys back the requirement amount of bonds from the market since bonds are cheap, but if interest rates are low (bond prices are high), then most likely the issuer is buying the bonds at the call price. Unlike a call feature, however, if a bond has a sinking fund call option provision, it is an obligation, not an option, for the issuer to buy back the increments of the issue as stated. Because of this, a sinking fund bond trades at a lower price than a non-sinking fund bond.
Amortizing Callable or Puttable Bond
Amortizing callable or puttable bonds work under a scheduled
Face
.
An amortizing callable bond gives the issuer the right to call back the bond, but
instead of paying the Face
amount at maturity, it repays part of the
principal along with the coupon payments. An amortizing puttable bond, repays part of the
principal along with the coupon payments and gives the bondholder the right to sell the bond
back to the issuer.
Version History
Introduced in R2008aR2022b: Serial date numbers not recommended
Although instoptembnd
supports serial date numbers,
datetime
values are recommended instead. The
datetime
data type provides flexible date and time
formats, storage out to nanosecond precision, and properties to account for time
zones and daylight saving time.
To convert serial date numbers or text to datetime
values, use the datetime
function. For example:
t = datetime(738427.656845093,"ConvertFrom","datenum"); y = year(t)
y = 2021
There are no plans to remove support for serial date number inputs.
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