Bond

From ThetaWiki

Description

A bond is a debt security in which the authorized issuer owes the holder a debt and is obliged to repay the principal and interest (also known as the coupon) at fixed dates. There is a large set of different bond types created by putting various options in the principal and coupon payment.

We will look at regular bonds which pay coupon and principal according to a fixed schedule.

Modelling Using ThetaML

ThetaScript

%% Coupons paying bond model for stochastic 
%% interest rates and thus stochastic numeraire EUR.
Model bond 
	import c_r "Coupon rate"
	import N "Nominal"
	import EUR "Numeraire"
	import T "Maturity"
	export P "Price" 
 
	P = E(V!)
	sum=0
	loop T
	    theta 1
	    sum = sum + c_r * N * EUR
	end 
	V=sum
end

Note that this ThetaScript is useful for both deterministic and stochastic interest rates. A simple model for stochastic interest rates is the Black model.