Financial Date-Roll Rules for Adding Months to Swap Dates
Summary
The document explains how financial schedules handle a tenor addition when the target month lacks the same numbered day. Its example, adding six months to August 30, leads to February’s last day rather than carrying the excess days into March. It identifies the ISDA FRN or Eurodollar convention as a basis for this treatment: use the last business day of the month when the matching calendar date does not exist.
It distinguishes this roll rule from business-day adjustment rules. Following, Preceding, Modified Following, and Modified Following Month End determine how a valid but non-business date is adjusted; the latter can preserve month-end status for dates that start at month end. The examples illustrate that the chosen adjustment can move a date across a month boundary or back within it. The discussion reflects common conventions in interest-rate derivatives, but the appropriate schedule depends on the instrument’s terms and market practice.
Key ideas
- When a target month lacks the original day number, the described convention uses that month’s final day.
- The document attributes this approach to the ISDA FRN or Eurodollar convention.
- Date rolling and business-day adjustment are separate steps in schedule generation.
- Modified Following adjusts forward unless doing so changes the month, in which case it adjusts backward.
- Modified Following Month End preserves month-end alignment when the starting date is itself month end.
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# Which convention drives what the result of "30 august 2017 + 6M" should be? # Which convention drives what the result of "30 august 2017 + 6M" should be? If I use c#'s AddMonths method, "30 august 2017 + 6M" will give "28 february 2018" (as the latter is the last day of the february month in the non leap year 2018). See the "Remarks" bit in the previous link. My question is : are there other possibilities than choosing the last day of the month ? What is the name of the financial convention driving this choice ? I am not sure it is end of month convention. ## Answer by Adam Napiórkowski (score 1, accepted) https://quant.stackexchange.com/a/45938 This seems to be the established convention and I'm not aware of other approaches being commonly (or at all) used. It's specified for example in ISDA Definitions: > Section 4.11. FRN Convention; Eurodollar Convention. “FRN Convention” or “Eurodollar Convention” means, in respect of either Payment Dates or Period End Dates ... that the Payment Dates or Period End Dates ... will be each day during the Term of the Swap Transaction that numerically corresponds to the preceding applicable Payment Date or Period End Date ... in the calendar month that is the specified number of months after the month in which the preceding applicable Payment Date or Period End Date occurred ... except that (a) if there is not any such numerically corresponding day in the calendar month in which a Payment Date or Period End Date ... should occur, then the Payment Date or Period End Date will be the last day that is a Business Day in that month, ## Answer by Attack68 (score 0) https://quant.stackexchange.com/a/45939 In (L) IBOR definitions and interest rate swaps there are generally two principles worth considering: - Roll Day (a specific rule which help schedule generators know how to align schedules but not exemplified in this post) - Adjustment Rules (other rules about what to do when dates are not business dates) Generally the adjustment rules are easily stated as 'Following (F)' or 'Preceeding (P)'. Example Fri 20th Jan + 6M goes to Sun 20th July and adjusted 'F' to Mon 21st July Mon 31st Jan + 6M goes to Sun 31st July and adjusted 'F' to Mon 1st August. There is a very common rule called 'Modified Following (MF)' and much less common 'Modified Preceeding (MP)' which precludes adjusting a date into a new month, i.e. tries to follow but fails so precedes. Example Mon 31st Jan + 6M goes to Sun 31st July and adjusted 'MF' to Fri 29th July. Almost all EUR and USD derivatives that I have encountered adopt this rule. There is an additional rule called 'Modified Following Month End (MFME)' which is used for example with GBP derivatives and LIBOR, when the start date is a month end the end date is automatically modified to be a month end Example Tue 28th Feb + 6M goes to Mon 28th August under 'MF'. Tue 28th Feb + 6M goes to Thur 31st August under 'MFME'. ### Specific Question Dates In the case that you add a tenor to yield a date that does not exist such as: Tue 30 Aug + 6M goes to 30th Feb there are two possible logical conversions: 1) convert that date to the end of the month instead, 30th Feb -> 28th Feb (or 29th) 2) move forward into the new month by the overlapping days 30th Feb -> 2nd Mar (or 1st) @Adam has provided an IDSA definition, but I would interpret this as enact 1) and then apply your adjustment rule; 'F' 'P' 'MF' 'MFME'. 2) is the least consistent choice and is not performed. Example Tue 30th Aug + 6M goes to Mon 1st Mar (where 28th Feb is a Sunday) under 'F' Tue 30th Aug + 6M goes to Fri 26th Feb (where 28th Feb is a Sunday) under 'MF' Tue 30th Aug + 6M goes to Fri 26th Feb (where 28th Feb is a Sunday) under 'MFME' (actually this is not a month end start anyway)
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