360 vs 365

Anyone have a quick and easy way to remember when to use 360 days and when to use 365 days when pricing and valuing forward contracts and FRA?? those 5 days are killing me!

not again…

On CFAI exams, they’ll tell you which to use.

Smarshy Wrote: ------------------------------------------------------- > On CFAI exams, they’ll tell you which to use. really, that’s good news… because i too am finding that studying the little nitty stuff is a big pain.

FRA and swap 360, all others 365.

tom18606 Wrote: ------------------------------------------------------- > FRA and swap 360, all others 365. this is incorrect, the days depends on the underlying instrument, 360 for bond instruments and libor, 365 for market rates such as equities. For instance a swap in which one side was floating based on libor plus spread and the other side was floating based on an equity index would be 360 days and 365 days respectively.

Either one will probably bring you close to the correct answer. I couldn’t imagine CFAI stooping as low as to give you one correct answer that uses 365 days, and then have an incorrect answer which uses the same calculation except for 360 day count. The only situation where I could see there being a large difference is on SWAPs where you your might be using the incorrect day count for numerous payment dates. Since SWAPs are always going to be based on LIBOR, it is easy to remember to use a 360 day count. For forwards and futures, it probably wouldn’t matter if you screw it up.

agree with black swan… easy way to remember like he mentioned… 360 for LIBOR based instruments and Bonds 365 for all else - currency, exchange, index etc…

Everything I’ve seen (on pricing forwards involving bonds with coupons) should be priced according to a 365 day year… Actually, this is really starting to mess with me… The schweser video shows a calculation with a zero coupon bond using 360 days…and then the schweser notes show a calculation with a treasury bond using 365 days… http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/faq.shtml#2

What I said is from cfai, done really care to much about what schweser says.

good point

Zero coupon bond treated like strips. So it is correct to use 360. However, bonds > 1 yr is using 365 days.

FRA and swaps primarily use LIBOR spot rates, so 360 days. CFAI books also used 360 days as they mentioned it clearly.