Date rolling
Encyclopedia
In finance, date rolling occurs when a payment day
or date used to calculate accrued interest
falls on a holiday
, according to a given business calendar
. In this case the date is moved forward or backward in time such that it falls in a business day
, according with the same business calendar
.
The choice of the date rolling rule is conventional. Conventional rules used in finance are:
Date rolling is particularly important for over-the-counter
derivatives, whose payment and end dates may potentially fall on any date. For standardized derivatives, in order to avoid problems with month ends, the payment and termination dates are generally chosen to fall in the middle of the month, as in the IMM dates
on futures and options contracts, and the similar dates on standardized credit default swap
s.
Payment schedule
The payment schedule of financial instruments defines the dates at which payments are made by one party to another on for example a bond or derivative...
or date used to calculate accrued interest
Accrued interest
In finance, accrued Interest is the interest that has accumulated since the principal investment, or since the previous interest payment if there has been one already. For a financial instrument such as a bond, interest is calculated and paid in set intervals...
falls on a holiday
Holiday
A Holiday is a day designated as having special significance for which individuals, a government, or a religious group have deemed that observance is warranted. It is generally an official or unofficial observance of religious, national, or cultural significance, often accompanied by celebrations...
, according to a given business calendar
Calendar
A calendar is a system of organizing days for social, religious, commercial, or administrative purposes. This is done by giving names to periods of time, typically days, weeks, months, and years. The name given to each day is known as a date. Periods in a calendar are usually, though not...
. In this case the date is moved forward or backward in time such that it falls in a business day
Business day
A business day is considered every official working day of the week. Another common term is working day. Typically, these are the days between and including Monday to Friday and do not include public holidays and weekends....
, according with the same business calendar
Calendar
A calendar is a system of organizing days for social, religious, commercial, or administrative purposes. This is done by giving names to periods of time, typically days, weeks, months, and years. The name given to each day is known as a date. Periods in a calendar are usually, though not...
.
The choice of the date rolling rule is conventional. Conventional rules used in finance are:
- Actual: paid on the actual day, even if it is a non-business day.
- Following business day: the payment date is rolled to the next business day.
- Modified following business day: the payment date is rolled to the next business day, unless doing so would cause the payment to be in the next calendar month, in which case the payment date is rolled to the previous business day. Many institutions have month-end accounting procedures that necessitate this.
- Previous business day: the payment date is rolled to the previous business day.
- Modified previous business day: the payment date is rolled to the previous business day, unless doing so would cause the payment to be in the previous calendar month, in which case the payment date is rolled to the next business day. Many institutions have month-end accounting procedures that necessitate this.
Date rolling is particularly important for over-the-counter
Over-the-counter (finance)
Within the derivatives markets, many products are traded through exchanges. An exchange has the benefit of facilitating liquidity and also mitigates all credit risk concerning the default of a member of the exchange. Products traded on the exchange must be well standardised to transparent trading....
derivatives, whose payment and end dates may potentially fall on any date. For standardized derivatives, in order to avoid problems with month ends, the payment and termination dates are generally chosen to fall in the middle of the month, as in the IMM dates
IMM dates
The IMM dates are the four quarterly dates of each year which most futures contracts and option contracts use as their scheduled maturity date or termination date...
on futures and options contracts, and the similar dates on standardized credit default swap
Credit default swap
A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...
s.
External links
- jFin pure java open source implementation of financial date arithmetic