Fix SimpleThenCompounded NPV for long first coupon period#2473
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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.
Owner
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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! |
Owner
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@pcaspers ☝️ — thanks! (Just nudging in case you missed, ignore me if you saw this but don't have time now) |
Contributor
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sorry, yes, I'll come back to this, just swamped right now with other things |
Contributor
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This PR was automatically marked as stale because it has been open 60 days with no activity. Remove stale label or comment, or this will be closed in two weeks. |
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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.