The Discounting Tools module consists of functions that can calculate discount factors and compound factors in various ways.

A discount factor can be interpreted as the present value of a zero-coupon bond paying one monetary unit at the maturity date. A compound factor can be interpreted as the future value of one monetary unit placed today. The functions come in both discrete-time and continuous-time versions. Both calendar time and non-calendar time versions are available.

The only difference between the non-calendar time versions and the calendar time versions is that dates can be used in the calendar time versions. When dates are used different day counting conventions have influence on the results. This is because the day counting conventions control the period length calculation methods.

The function DiscountFactors takes a list of dates or a list of period lengths for which discount factors are wanted and a term structure and returns the corresponding list of discount factors.

ConvertDiscountFactorBasis converts a discount factor calculated with one set of day counting and compounding methods to another discount factor calculated with another set of day counting and compounding methods. This function is used if the original discounting interest rate is unknown.

Context

 The discount factors are central to all asset and liability pricing. Discount factors are used in the function Present Value, for example, to discount all relevant cash flows. If cash flows are not discounted, they are often referred to as nominal cash flows.

Contents

3.1 Introduction

Summary -- Context -- This Opens the Package

3.2 Discounting Functions/Components

DiscountFactor -- DiscountFactors
DiscountFactorToInterestRate -- ConvertDiscountFactorBasis

3.3 Compounding Functions/Components

CompoundFactor

+ 3.4 A Note on Precision

Note