Why do results from Excel and RATE2DISC not match?

I use RATE2DISC to calculate discount factors from interest rates but the results do not match exactly with the results of Excel calculations.

Answer 1

[MathWorks Support Team]

The issue here is related to the way that RATE2DISC assumes a compounding convention in determining time factors, and more specifically, in computing coupon periods. Per SIFMA (which used to be SIA) convention used in the US, for the basis 0-7, a semi-annual compounding convention is assumed to compute the coupon periods. Per ICMA (used to be ISMA) used in Europe, for the basis 8-12, an annual compounding convention is assumed.

The following example illustrates the differences that appear when computing a discount factor.

% Assume semi-annual coupon periods

>> DF = exp(-.04*14/182/2)

DF =

     0.998462721286836

>> 

% Assume annual coupon periods -- this matches the Excel result

>> DF = exp(-.04*14/365)

DF =

     0.998466929779252

>>

For this particular case, changing the basis to be 10 will provide answers that match Excel.