Once you enter an instrument’s expiry date and frequency basis SDX Interest Rates then calculates the number of coupons required and, for each coupon, then defines the following dates as relevant:
Its start and end dates.
Its fixing date.
Its payment date.
In certain circumstances dates cannot fall on a non-business day. According to market convention this includes the following:
A coupon’s fixing date.
A coupon’s payment date.
The start date of an instrument’s first coupon.
In addition, you may want to instruct the system to only allow a coupon’s start and end dates to fall on a non-business date. You do this setting the Coupon Calculation button to adjusted (for more information see Configuring if Coupon Start & End Dates Can Fall on Non-Business Days.
In these four circumstances the system needs to know how to adjust the date so it will not fall on a non-business day. It does this according to the roll convention. You can choose any of the following:
Following
This means the transaction will be delayed to the next business day.
Modified Following
This means the transaction will be delayed to the next business day. However, if that day is in the next month, the transaction is moved to the last business day of the current month.
Preceding
This means the transaction is moved to the preceding business day.
Modified Preceding
This means the transaction is moved to the preceding business day. However, if that day is in the previous month, the transaction is moved to the first business day of the current month.
You do this in the Cash Flow Dates window (Working With the Cash Flow Dates Window).
To configure the roll convention:
| 1. | In the pricing page, define the instrument. |
| 2. | Click the Cash Flow & Dates button. |
| 3. | In the Cash Flow Dates window from the Roll Convention dropdown list click the convention you want to use. |
| 4. | Click Calculate to implement this change for the underlying coupons. The dates are updated as necessary. |
| 5. | Click Accept to save these changes for this instrument. |