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Day Count Convention

Monday, January 16, 2012

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The Day Count Convention determines how interest is calculated between coupon payments on financial transactions such as funding, derivatives and investments.

As such it also determines how much is paid/received on the payment date at the end of the respective interest period.

There is no one market standard, rather conventions vary based on the location, currency and transaction type. Options include:

1. Descriptions

Money Market Basis (Actual/360)

The day count fraction used is actual number of days in the period divided by 360.

This is commonly used for Euro LIBOR transactions.

Eurobond Basis (30E/360 or 30S/360)

This convention assumes that all months have 30 days and that a year is 360 days.

If either the start date or end date is the 31th then it changes to 30th.

Bond Basis (30/360 US)

This convention assumes that all months have 30 days.

If the end date is the 31st and the start date is not the 30th or 31st then that month shall have 31 days.

This is commonly used for US corporate bonds.

Actual/365 Fixed

The day count fraction used is actual number of days in the period divided by 365.

This is commonly used for Sterling transactions and in other markets such as Canada and Australia.

Actual/365 or Actual/Actual

The day count fraction used is actual number of days in the period in a normal year divided by 365.

In the event of a leap year this is adjusted by dividing by 366.

This is commonly used for Sterling bonds, EUR bonds, US Treasury bonds and some US$ interest rate derivatives.

Fixed Coupon

The day count fraction used is one divided by the number of interest payments per year. The coupon payments are thus always the same (with any small difference in the number of days ignored).

2. TreasuryView™ Methodology

TreasuryView™ covers all key Day Count Conventions. It is also possible to display the period start date, end date and accruing days in the deal schedule:

Setting the Day Count Convention in TreasuryView 

Cash flow interest is calculated as follows:

Nominal * Coupon rate * Day Count fraction

Where:

  • Nominal is the nominal balance active in the period between consecutive payment dates;
  • Coupon rate is the Reference rate+Margin (or the Fixed Rate) which active between the accruing start and accruing end dates;
    Accruing start date is DD1.MM1.YYYY1 ;
    Accruing end date is DD2.MM2.YYYY2 ;
  • Day Count Fraction for each convention is provided here:

Convention

Day Count Fraction

Days in period ( )

Act/360

  is number of calendar days between   and  .

Act/365

  is number of calendar days between   and  .

30/360

 , where

  1. If   is 31, then  ;
  2. If   is 31, then  ;
  3. If   is last day of February, then  ;
  4. If   is last day of February, then  ;

30S/360

 , where

  1. If   is 31, then  ;
  2. If   is 31, then  ;

30B/360

Let us   be months between dates   and  .

  1.  If  =  , then  , where Ceiling is function that rounds   up 1-digit precision (for example 2.1 is rounded up to 3);
  2. Else   is equal to number of days under day count convention 30/360.

365/360

  is number of calendar days between   and  , excluding leap year day 29. February.

Act/Act

  / 365 +   / 366

  is number of calendar days in non-leap years between   and  .
  is number of calendar days in leap years between   and  .

Act/Act (AFB)

 , where   is

  1. 365 if period ( ; ] does not consist 29.February;
  2. 366 if period ( ; ]  consists 29.February.

Let us   =   and  =   and   =   such as  , where  . Let us   is number of calendar days between   and  , where  .
It means that (  are 1-year periods counting backwards from  , ( ).

Please note that TreasuryView™ assumes that the start date is excluded from the period and the end date is included in the period.

3. Other

Day Count Convention may also be refeered to Year Fraction Methodology, Accrued Interest Methodology, Yield Calculation Methodology or Coupon Payment Methodology.

The start and end dates of a period are determined by the Business Day Convention.

Learn more about Business Day Conventions...

4. Further Reading

The following sites offer further resources:

 

Notes to users:
We are constantly expanding our functionality and improving the user experience. This requires to make changes from time to time.
This may result in small discrepancies between the help section and system, for which we apologise.

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