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Modified Following Date Adjustment for Money-Market Instruments

Article Quant Q&A · Author: Mike M
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Summary

The document explains how the modified following business-day convention adjusts dates for a one-month PLN WIBOR instrument and a forward rate agreement. Under this convention, a date is first moved forward to the next business day; if that adjustment would place it in the following calendar month, it is instead moved backward to the preceding business day. In the example, the proposed end date of February 2015 falls on a weekend, so the answer adjusts it to the prior business day, February 27, rather than carrying it into March.

The response applies the convention to the maturity-date question and treats the same adjusted date as the FRA's effective date in the example. This is a calendar-convention illustration, not a broader account of curve construction. Actual instrument schedules can also depend on the relevant business-day calendar and contract terms, neither of which is examined in detail here.

Key ideas

  • Modified following moves a non-business date forward unless doing so changes the calendar month.
  • When the forward adjustment crosses into another month, the date moves backward to the previous business day.
  • The example adjusts the February 2015 date to February 27 rather than March 2.
  • The result illustrates date adjustment and does not cover all conventions or instrument-specific schedule rules.

Tags

Fixed incomeDerivatives pricingStatistics
Full text
# Effective & Maturity Date Modified Following


# Effective & Maturity Date Modified Following












I am constructing discount curve for tenor 1 month.

First Instrument - PLN_1M_WIBOR has Effective Date on 2015-01-29 (spot). I was wondering what Maturity Date should be? 2015-02-27 or 2015-03-02? I am using modified following convention. According to to this convention I suppose it should be 2015-02-27, but I am not sure.

Second instrument is FRA_0102 dated on today (2015-01-27), so it`s Effective Date should be 2015-02-27?

## Answer by Helin (score 1)

https://quant.stackexchange.com/a/16363

Using modified following, the date should never fall into the next month. If the target date is in the next month, you should move it back to the end of the current month. So Feb 27, 2015 is the correct answer.

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