Comparing Flat-Curve Bond Pricing with Yield-Based Pricing

Summary

The document asks whether a fixed-rate bond priced with a flat discount curve produces the same result as pricing it directly from a specified yield. It compares two RQuantLib functions and notes that the curve-based function can return more than a single clean price, including dirty price, accrued interest, and cash-flow information.

The text frames a software and fixed-income pricing question but does not supply a comparison, formulas, or empirical output. It therefore does not establish whether the clean prices match under identical conventions. Any comparison would need consistent settlement and evaluation dates, coupon and day-count conventions, compounding, and treatment of accrued interest. The distinction between clean and dirty price is the main practical point raised; further conclusions require checking the functions' assumptions and outputs.

Key ideas

• A flat discount curve and a yield input are two ways to parameterize fixed-rate bond valuation.
• The functions under discussion may return different sets of outputs, including accrued interest and cash-flow details.
• Clean price excludes accrued interest, while dirty price includes it.
• The document raises the comparison but does not report whether the prices agree under matched conventions.

Tags

# RQuantLib: any difference between FixedRateBond() and FixedRateBondPriceByYield() with flat term structure?


# RQuantLib: any difference between FixedRateBond() and FixedRateBondPriceByYield() with flat term structure?












Please, consider the following functions from `RQuantLib` package:

- `FixedRateBond()`

- `FixedRateBondPriceByYield()`

Is there any difference in the final output if one uses the former specifying a flat term structure, e.g.

```
params <- list(tradeDate = as.Date(’2002-2-15’),
               settleDate = as.Date(’2002-2-19’),
               dt = .25,
               interpWhat = "discount",
               interpHow = "loglinear")
               setEvaluationDate(as.Date("2004-11-22"))
               discountCurve.flat <- DiscountCurve(params, list(flat = 0.05))
```

instead of the latter with `FixedRateBondPriceByYield(..., yield = 0.05, ...)`? (Use the same parameters at `...`).

`FixedRateBondPriceByYield()` should just return bond's clean price, while `FixedRateBond()` can return dirty price in addition to accrued interests and cash flow tables.

Anything else?

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.