Fix SimpleThenCompounded NPV for long first coupon period#2473
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zippyg wants to merge 1 commit intolballabio:masterfrom
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Fix SimpleThenCompounded NPV for long first coupon period#2473zippyg wants to merge 1 commit intolballabio:masterfrom
zippyg wants to merge 1 commit intolballabio:masterfrom
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For bonds with a long irregular first coupon period, CashFlows::npv() and the related duration and convexity functions incorrectly applied compound discounting to the first period when the yield convention is SimpleThenCompounded. The ICMA specification requires simple discounting for the first period unconditionally; the time-magnitude threshold in InterestRate::compoundFactor() only diverges from this when the first stub exceeds one frequency period. The fix moves the period-position logic into the affected functions using a firstCoupon flag and, for modifiedDuration and convexity, running alpha/beta accumulators that correctly represent the mixed simple-then-compound derivative. Normal bonds (all periods equal to exactly 1/frequency) are numerically unaffected. Fixes lballabio#2172.
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@pcaspers, you had done some analysis and had some test cases, if I recall correctly. May you have a look? Thanks! |
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For bonds with a long irregular first coupon period, CashFlows::npv() and the related duration and convexity functions incorrectly applied compound discounting to the first period when the yield convention is SimpleThenCompounded. The ICMA specification requires simple discounting for the first period unconditionally; the time-magnitude threshold in InterestRate::compoundFactor() only diverges from this when the first stub exceeds one frequency period. This patch moves the period-position logic into the affected functions using a firstCoupon flag and, for modifiedDuration and convexity, running alpha/beta accumulators that correctly represent the mixed simple-then-compound derivative. Fixes #2172.