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HWTree_ExchBondOpt() function

HWTree_ExchBondOpt(argument list…)

This function returns the value of an option to exchange one bond plus cash for another bond. The function uses the following arguments:

Argument Description Restrictions
Valuation_Date valuation date (e.g. today) valid Excel date number
Bond_Freq bond accrual frequency per annum 1, 2, 4, or 12
Bond1_Mat maturity date of the bond one wishes to exchange (give up) valid Excel date number
> Valuation_Date
Bond1_Cpn annual coupon rate of the bond one wishes to give up, in decimal form (e.g. six percent entered as 0.06) >= 0
Bond1_OAS_diff the spread above the zero curve for the bond one wishes to give up, IN ADDITION to the regular OAS
Cash the amount of cash per $100 par one must also exchange in order to receive the other bond
Bond2_Mat maturity date of the bond one wishes to exchange for (receive) valid Excel date number
> Valuation_Date
(must have overlapping coupons with other bond)
Bond2_Cpn annual coupon rate of the bond one wishes to receive, in decimal form >= 0
Bond2_OAS_diff the spread above the zero curve for the bond one wishes to receive, IN ADDITION to the regular OAS
First_X_Date the first exchange opportunity must be on a coupon date
Exer_Freq the number of exchange opportunities per annum 1, 2, 4, or 12
<= Bond_Freq
Last_X_Date the final exchange date must be on a coupon date
NoticeDays minimum notice, in days, required to exchange the bonds >= 0
Short_Rate_Vol annual standard deviation of the short rate of interest, in decimal form > 0
Reversion_Rate mean reversion rate of the short rate of interest, in decimal form >= 0
Tree_Step number of steps in the trinomial tree PER EXERCISE DATE > 0 (typically 2 to 10)
Zero_Dates array of zero coupon curve dates strictly ascending order
The first date of this array must be Valuation_Date
Zero_Rates array of continuously compounded riskless rates in decimal form (e.g. six percent entered as 0.06) corresponding to Zero_Dates > 0
OAS parallel shift of the zero curve in decimal form
Bucket_Start beginning of bucket for zero curve shifts set to 0 if curve shift is not desired
Bucket_End end of bucket for zero curve shift >= Bucket_Start
Bucket_Shift parallel shift of the zero curve between Bucket_Start and Bucket_End in decimal form set to 0 if curve shock is not desired


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