The market price calculator for bonds calculates current market values. It also calculates market values and time values for a future point in time (horizon).

You can create and valuate fixed rate bonds, zero bonds, and floaters as standard or foreign currency bonds. You can have up to two transaction currencies - one for interest and one for principal. You can create fixed or floating interest rate agreements.

In SAP Banking Risk Management, you can create positions from security transactions, and valuate them.

Depending on the Customizing settings, the valuation uses the NPV as the theoretical price (by calculating the NPV of interest and principal payments), or it is the market price (by including the security price and accrued interest). The NPV always contains accrued interest and is thus always a dirty price. If the horizon comes after the evaluation date, the theoretical price of the bond is always calculated as the NPV on the horizon.

Depending on Customizing settings, two types of valuation are possible for spot security transactions.

• The NPV is the market price of the bond:
  
  The current price of the bond on the evaluation date has to be specified. The specified ID number is the number of the security class.

• The NPV is the theoretical price of the bond:
  
  You need to enter the transaction data and either a par coupon or zero coupon yield curve in the transaction currency (bid or ask rate) for the evaluation date. In addition to the yield curves necessary to discount a generated cash flow, you may also have to specify yield curves for calculating forward rates for floating interest payments (see Input Parameters).

If the display currency differs from that of the transaction currency, you will need the relevant exchange rate. If the horizon comes after the evaluation date and one of the transaction currencies differs from the display currency, then you have to enter a parcoupon or zero coupon yield curve so that the forward exchange rate can be calculated for the horizon.

Depending on Customizing settings, two types of valuation are possible for spot security transactions.

• The NPV is the market price of the bond:
  
  The amount of the cash flows resulting from accrued interest on the horizon is generated.

• The NPV is the theoretical price of the bond:
  
  Treasury Management automatically generates a cash flow for you when a bond is created. The cash flow consists of interest payments and principal payments which fall on certain dates, and are normed to a nominal amount of 100,000. If the interest rate is fixed, the amount of the interest payments is known. If the interest rate is floating, only the reference interest rate is known. The cash flows are summarized into a security according to the position data of the position object.

Zero bond discounting factors are needed to discount cash flows.

If the display currency differs from that of the transaction currency, the exchange rate on the horizon is used to convert from the transaction currency into the display currency. If the horizon comes after the evaluation date, the forward exchange rate will be calculated from the exchange rate on the evaluation date using the yield curves from the transaction and display currencies.

Depending on the Customizing settings, there are two types of valuation for a security position:

• The NPV is the market price of the bond:
  
  The NPV is the sum of the current price of the bond in the transaction currency (multiplied by the nominal volume of the security position) and the accrued interest on the horizon.
  
  Note the following definitions:

• ACT: Current (actual) price of stock
• NV: Nominal volume of security position
• W(ACT): Currency of current price of security (issuing currency)
• C: Cash flow for accrued interest
• W(C): Currency of cash flow C
• DC: Display currency
• WK(W(ACT)/W(C) ; DC): Currency W(ACT)/DC or W(Ci)/AZ (bid or ask rate) on horizon
• B: Long/short indicator
• NPV: Net present value

• The NPV is the theoretical price of the bond:
  
  First, the entire cash flow is reduced to those payments which come after the horizon. For security positions with variable interest rates, the forward reference interest rates are also calculated. The calculated interest payments are put into the cash flow, which only contains flows whose size and payment date are certain. The cash flows are then standardized according to the nominal volume of the security position. Depending on the method of calculation (par or zero coupon method), the NPV of the individual cash flows is calculated for the horizon, using the yield curve of the transaction currency. The value of the security position (in the display currency) is the NPV of the sum of the cash flows. These cash flows are standardized to the nominal volume of the position, and converted to the display currency using the appropriate (forward) exchange rate. For short positions, the whole calculation is multiplied by negative one (-1).
  
  The following abbreviations/definitions are used:

• ti_: Due dates of cash flows
• NV: nominal volume of the security position
• Ci: Cash flow on date ti (with NV/100,000 standardized to the nominal volume)
• BW(C_i): Net present value on the horizon of the cash flow Ci due on ti
• Wi: currency of cash flow Ci
• WK(Wi;AZ): (forward) currency rate (ask or bid) Wi/AZ
• K: Long/Short indicator
• NPV: Net present value