Day count convention

Interest rate calculation methods refer to the individual variants of financial mathematics in the calculation of interest. Altogether there are nine different methods that are scientifically recognized worldwide. Of these, six are in reality methods for application. All methods here are based on the classical interest rate formulas, they differ only in the calculation of the number of days ( see also interest income ). The world's customary methods are:

Methods

ACT is the abbreviation of actual ( actually German ).

  • ACT/360 - Euro interest method, French interest method The interest days are determined calendar exactly, so the interest year has 365 or 366 days.
  • The base year is the same irrespective of the actual number of days in contrast to act/365 360 days.
  • In the euro interest rate method, the first Anlagetag bears interest, the last Anlagetag will not bear interest.
  • The French interest method, the first Anlagetag will not bear interest, the last Anlagetag bears interest.
  • Act/365 - English interest method The interest days are determined calendar exactly, so the interest year has 365 or 366 days.
  • The base year is the same irrespective of the actual number of days in contrast to ACT/360 365 days.
  • The first Anlagetag will not bear interest, the last Anlagetag bears interest.
  • ACT / ACT - precise daily or effective interest method ( ICMA Rule, formerly ISMA Rule ) The second ACT in this case stands for English actual historical (German actually historically ).
  • The interest days are determined calendar exactly. So the interest year has 365 or 366 days.
  • The base year as the interest year calendar exactly 365 or 366 days.
  • The first Anlagetag will not bear interest, the last Anlagetag bears interest.
  • 30/360 or 30E/360 - German (commercial ) interest method The interest month is always 30 days, the interest year comprises 360 days. Of 30 and 31 as a total one days are counted in months with 31 days. For transactions ending in February, the days are calendar accurately counted. For February there are thus a maximum of 28 or 29 days. For transactions that do not end in February, February is counted at 30 days.
  • The base year as well as interest rate and monthly interest period used, regardless of the actual number of days with 360 days.
  • Depending on the type of investment, either the first or the last Anlagetag Anlagetag bears interest and the other does not.
  • (30 ( 28-29) / 360 ) - U.S. interest rate method The method is based on the German commercial interest method, because the interest months are recognized at 30 days and the interest period of 360 days. Exception of February, which is exactly calendar set exactly at 28 and 29 days, unless the period beginning or the end of the period falls on these days.
  • The base year as well as interest rate and monthly interest period used, regardless of the actual number of days with 360 days.
  • The first Anlagetag will not bear interest, the last Anlagetag bears interest.

Application

  • ACT/360: This method is for example in the eurozone and Switzerland in the money market and in the calculation of mortgage their application.
  • ACT / ACT: This method is for example in the eurozone in the capital market and bonds their application. Differences will act / act according to the ICMA method or the ISDA method.
  • Act/365: This method is used in some countries of the European Community in the money market their application.
  • 30/360: These and the 30E method, for example, in the capital market in Switzerland their application.

Working day conventions

In contracts, the interest calculations about the contents must also be clarified is how to deal with due to weekends and holidays (interest ) payments. The " following" ( next business day ) is the payday for the next banking day (TARGET) down (modified following business day) at the " modified following " shall include the principle of Following except for the case that the next banking day next month is: then the previous banking day is selected. This is to prevent that cycle times in the next month due to strict adherence to the Following - and in December in the next year - move. Are the interest periods specified in their contracts ( about 30 days) and the modified following would lead to an effective interest rate period of only 28 days, must be agreed in a " modified following adjusted".

Evaluation

Since the various methods of calculating interest due to the different durations can lead to significant interest rate differentials with the same nominal interest rate, should be questioned at a capital investment or borrowing, interest is the method by which.

Mathematical finance Bond (finance) International Swaps and Derivatives Association
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