Accr Before Hor
Key Accr Before Hor in Advanced Pricing refers to an optional boolean that defines whether interest amounts that accrue up to the horizon date Tʰ defined in Horizon Date contribute to the cash flows paid after Tʰ in the context of valuation as of Tʰ
TRUE means such accrual amounts do contribute, which means that cash flows paid after Tʰ are not affected by the choice of Tʰ
The TRUE setting corresponds to how the dirty price of a bond is calculated as of the horizon date.
FALSE means such accrual amounts are assumed to not contribute, which means that cash flows paid after Tʰ are affected by the choice of Tʰ
This is handled by assuming the original cash flows unchanged, but subtracting from their PV as of Tʰ the value attributed to the interest portion that has been accrued until Tʰ
Technically, this subtraction is implemented by modifying the original tradable with the help of a fictitious tradable that equals the original apart from the fact that starts at Tʰ
The exact modification and the related computational logic depends on several context-dependent parameters and is reported at run time through Pricing Steps Tracing
The FALSE setting corresponds to how the clean price of a bond is calculated as of the horizon date, which by the way makes use of the technique mentioned above.
If omitted, the default is FALSE
Note, this setting affects only the PV as of the horizon time and does not affect the Spot Price, which is always calculated in dirty terms to equal the PV of all cash flows occurring after valuation date.
Also note that this setting affects quite dramatically the calculation algorithm.
While the TRUE setting keeps the initial tradable(s) intact and calculates all forward values by modifying the forecasting and discounting curves, the FALSE setting relies on modifying the tradable(s) as well.
It is therefore expected that the FALSE setting results in higher computation times that may be noticable in big portfolios.