EUROPEAN BOND OPTION VALUATION PROCEDURE

Financial solutions home page

1. Log into your account or if you are a new user, register your account and enable two factor authentication.
2. Click on the [European bond option] button, this will take you to the Dynamic-text-blocks parameters page.

Dynamic text-blocks parameters page

1. Select to enter flat or time-varying yield curve at indicated times.
2. Select option type.
3. Enter number of outstanding coupons for the fixed rate bond.
4. Enter coupon payment frequency per year.
5. Enter the time till next coupon payment in years.
6. Click the submit button, this will take you to the array populating page.

Array populating page

1. Enter continuously compounded zero rates at indicated times.
2. Click the submit button, this will take you to the European bond option valuation parameters page.

European bond option valuation parameters page

1. Enter the name of reference entity.
2. Select the currency of valuation from the drop-down list.
3. Enter the coupon rate for the underlying fixed-coupon bond.
4. Enter the bond's principal value payment.
5. Enter the option expiry period in years.
6. Enter the annualised forward bond price yield volatility at option expiry.
7. Enter the continuously compounded risk-free zero-rate for option expiry period.
8. Enter the bond option cash strike price.
9. Enter allocated expenses and tax to be adjusted on pure option price.
10. Enter the profit loading to be adjusted on pure option price. If the pure option value is s_v, and dealing expenses and tax charge is s_et, and the profit loading is s_pt, the final option value is calculated as P = (s_v + s_et)*(1.0 + s_pt). It is important to note that valuation is done from a dealer/broker's perspective. The profit-charge is charged by the dealer/broker.
11. Click the submit button and this will take you to the output display page.

Output display page

1. You can view pricing model output together with input parameters you entered.
2. At the bottom of the page you can click on the button to create database record for the current model output. This will take you to the create database record page where you should click on the create button to create the database record.
3. After clicking on the create button to create the database record, you will be taken to the database records view page, where you can scroll vertically or horizontally to view database records including the one you just created.
4. You can filter database records according to the currency of valuation or option-type using the filter box. You can click on the details link on the extreme right of a particular database record, this will take you to the particular database record details page.