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convfactor

Bond conversion factors

Syntax

CF = convfactor(RefDate,Maturity,CouponRate)
CF = convfactor(RefDate,Maturity,CouponRate,'ParameterName',ParameterValue, ...)

Description

CF = convfactor(RefDate,Maturity,CouponRate) computes a conversion factor for a bond futures contract.

CF = convfactor(RefDate,Maturity,CouponRate,'ParameterName',ParameterValue, ...) accepts optional inputs as one or more comma-separated parameter-value pairs. 'ParameterName' is the name of the parameter inside single quotes. ParameterValue is the value corresponding to 'ParameterName'. Specify parameter/value pairs in any order. Names are case-insensitive. convfactor computes a conversion factor for a bond futures contract, given a Convention value for a US Treasury bond, German bond, UK Gilt, or Japanese Government Bond.

Input Arguments

RefDate

Reference dates, for which conversion factor is computed (usually the first day of delivery months).

Maturity

Maturity date of the underlying bond.

CouponRate

Annual coupon rate of the underlying bond in decimal.

Parameter–Value Pairs

Enter the following inputs only as parameter–value pairs.

Convention

Conversion factor convention. Scalar. Valid values are:

  • 1 = US Treasury bond (30-year) and Treasury note (10-year) futures contract

  • 2 = US 2-year and 5-year Treasury note futures contract

  • 3 = German Bobl, Bund, Buxl, and Schatz

  • 4 = UK gilts

  • 5 = Japanese Government Bonds (JGBs)

Default: 1

FirstCouponDate

Irregular or normal first coupon date.

RefYield

Reference semiannual yield.

Default: 0.06 (6%)

StartDate

Forward starting date of payments.

Output Arguments

CF

N-by1 vector of conversion factors against the 6% yield par-bond.

Examples

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This example shows how to calculate CF, given the following RefDate, Maturity, and CouponRate.

RefDate  = {'1-Dec-2002';
               '1-Mar-2003';
               '1-Jun-2003';
               '1-Sep-2003';
               '1-Dec-2003';
               '1-Sep-2003';
               '1-Dec-2002';
               '1-Jun-2003'};
 
Maturity = {'15-Nov-2012';
               '15-Aug-2012';
               '15-Feb-2012';
               '15-Feb-2011';
               '15-Aug-2011';
               '15-Aug-2010';
               '15-Aug-2009';
               '15-Feb-2010'};
 
CouponRate = [0.04; 0.04375; 0.04875; 0.05; 0.05; 0.0575; 0.06; 0.065];
 
CF = convfactor(RefDate, Maturity, CouponRate)
CF = 

    0.8539
    0.8858
    0.9259
    0.9418
    0.9403
    0.9862
    1.0000
    1.0266

This example shows how to calculate cf, given the following RefDate, Maturity, and CouponRate for a German bond.

cf = convfactor('3/10/2009','1/04/2018', .04,.06,3)
cf = 0.8659

More About

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Conversion Factors

Conversion factors of US Treasury bonds and other government bonds are based on a bond yielding 6%.

Optionally, you can specify other types of bonds and yields using inputs for RefYield and Convention. For US Treasury bonds, verify the output of convfactor by comparing the output against the quotations provided by the Chicago Board of Trade (http://www.cmegroup.com/company/cbot.html).

For German bonds, verify the output of convfactor by comparing the output against the quotations provided by Eurex (http://www.eurexchange.com).

For UK Gilts, verify the output of convfactor by comparing the output against the quotations provided by Euronext (http://www.euronext.com).

For Japanese Government Bonds, verify the output of convfactor by comparing the output against the quotations provided by the Tokyo Stock Exchange (http://www.jpx.co.jp/english/).

References

Burghardt, G., T. Belton, M. Lane, and J. Papa. The Treasury Bond Basis. McGraw-Hill, 2005.

Krgin, Dragomir. Handbook of Global Fixed Income Calculations. John Wiley & Sons, 2002.

Introduced in R2009b

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