1
$\begingroup$

The NOK overnight index NOWA is defined as:

Reported interest rates shall be calculated as nominal annual rates for the actual number of days in the year ahead (365 or 366). (The percentage return over the term is calculated by dividing the interest rate by the actual number of days in the year ahead and multiplying it by the actual number of days to maturity).

As far as I can tell, this is a relatively non-standard day count (because it refers to the year from the fixing date). My interpretation of the rule gives:

  • Fixing on 2015-02-28 = 365 days (2015-02-28 to 2016-02-27 inclusive)
  • Fixing on 2015-03-01 = 366 days (2015-03-01 to 2016-02-29 inclusive)
  • Fixing on 2016-02-28 = 366 days (2016-02-28 to 2017-02-27 inclusive)
  • Fixing on 2016-02-29 = 365 days (2016-02-29 to 2017-02-28 inclusive)

Two questions:

  • Is my interpretation correct?
  • Does this day count have a recognised name?
Improve this question
$\endgroup$
1
  • $\begingroup$ Following the answer below, we decided to create a new day count for this in Strata which we called 'Act/Act Year'. We did this because 'Act/Act ICMA' requires lots of additional data (coupon frequency, EOM convention, and coupon dates) whereas 'Act/Act Year' only needs the two dates as input. $\endgroup$
    – JodaStephen
    Jun 28, 2016 at 11:14

1 Answer 1

Reset to default
0
$\begingroup$

Yes the interpretation is correct as you are using the day count convention Actual/Actual and yes this day count convention is a non -standard as there are no fixed number of days we have to take like in case of Actual/360 or Actual/365. The reason for using Actual/Actual here as we are calculating on an accrued basis like we do for the calculation of accrued interest.

As far as I know there is no standard terminology for the various day count conventions but the below are the recognized names worldwide:-

Actual/Actual, Act/Act ICMA, ISMA-99, Act/Act ISMA

Improve this answer
$\endgroup$
1
  • $\begingroup$ Thanks. Yes, if you set the the coupon frequency to yearly and the coupon period to a year starting from the fixing date, I agree that Act/Act ICMA fits the description. $\endgroup$
    – JodaStephen
    Jun 20, 2016 at 9:50

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.