In a holdings report
LUSID automatically reports amortised cost converging towards par over time. For example, for a bond purchased on 15 Jan 2020 above, at and below par that matures on 15 Jan 2030:
In a valuation report
You can specify the following metrics to examine and understand amortisation calculations:
Domain | Key | Explanation |
|---|---|---|
|
| The amortisation method specified on the portfolio. Note this may be overridden by amortisation rules if specified. |
|
| Calculated amounts since holding inception. |
| Diagnostics for the metrics above. Note | |
|
| Unrealised gain/loss since the beginning of the P&L window. |
| Realised gain/loss since the beginning of the P&L window. |
Recognising an original issue discount on a bond definition
An original issue discount (OID) is a discount that occurs if a bond is issued at a price lower than its par value. This discount represents the difference between the stated redemption price of the bond at maturity and the initial issue price. The OID is amortised over the life of the bond and is gradually recognised as interest expense over the term of the bond.
For LUSID to calculate the OID component of amortisation, the original issue price of the bond must be stored on the bond instrument's economic definition. You can call the UpsertInstruments API to either master a new bond, or to change the definition of an existing bond, and specify a percentage of par as the value of the originalIssuePrice field, for example 98.5 to represent 98.5%. By default, it is set to 100.
Understanding amortisation calculation components
Component | Explanation |
|---|---|
OID | Providing the original issue price is stored on the bond definition, LUSID calculates the OID component per unit holding for each period by applying the selected amortisation method for a holding of one unit purchased at issue at the original issue price and held to maturity. The OID component for a particular holding tax lot at each period is equal to the OID component for that period multiplied by the units held in that period. The adjusted issue price (AIP) at a given period is the original issue price adjusted for the cumulative OID amortisation component accrued up to that period using the amortisation method selected for that holding. The AIP is critical for calculating the market discount and acquisition premium components (see below). |
Market discount | The market discount is the discount that occurs when a bond is purchased at a price lower than the AIP. LUSID calculates the market discount component by first calculating the total acquisition discount amortisation component of each period for that holding and subtracting the OID component accrued for that period. |
Acquisition premium | The acquisition premium is the premium on the AIP that occurs when a bond is purchased at a price lower than the redemption price of the bond at maturity but higher than the AIP. LUSID calculates the acquisition premium component by first calculating the total acquisition discount amortisation component of each period for that holding and subtracting the OID component accrued for that period. |
Premium | The premium is the premium that occurs when a bond is purchased at a price that is higher than the notional or par value of the bond. LUSID calculates the premium amortisation component by first calculating the total amortisation accrued in each period for that holding. |
Given the following example scenario:
ABC company issues a bond starting on 1st Jan 2020 and maturing on 1st Jan 2025 with a principal of $1 and original issue price of $0.8. A trade was made to buy one million units at the start.
The amortisation component schedules for various purchase prices using the StraightLine method are as follows:
Scenario 1: Purchased at $1.1 (purchase price > par)
Scenario 2: Purchased at $1 (purchase price = par)
Scenario 3: Purchased at $0.9 (purchase price < par, purchase price > AIP)
Scenario 4: Purchased at $0.8 (purchase price < par, purchase price = AIP)
Scenario 5: Purchased at $0.7 (purchase price < par, purchase price < AIP)
