Date Adjustment Conventions

Adjustment conventions, also known as Business Day Conventions, provide definitions of how you move a date that may fall on a weekend or a holiday to a valid business day.

These are implemented in org.jfin.date.BusinessDayConvention and org.jfin.date.holiday.HolidayCalendar available as part of the jFin release.

Dates need to be adjusted throughout the creation and definition of derivatives and options:

• Adjusting an accrual period so that it's start and end fall on valid business days
• Getting the right day on which payments should be made
• Finding the business day for applying fixings
• Calculating the last day on which an option can be exercised

All of these have an impact on the cashflows of a trade, and consequently an impact on a trade's price.

Often dates need to be adjusted to fall on a valid business day in multiple centers, for example if a trade is issued by a bank in New York to a counterparty in Tokyo. Here payments cannot fall on a holiday in either New York or Tokyo and have to be adjusted with reference to both holiday calendars.

When capturing or specifying a derivative trade it is best practice to express dates as:

• The unadjusted date
• The convention used for adjusting the date
• The city or cities for which the adjusted date must be a valid business day

This is because the holiday calendars for the cities may (and often do) change over the lifetime of the trade, potentially leading to the adjusted date to change.

This is especially important for the exercise dates of european and bermudan options where the market risk associated with missing the date when an option can be put or called is potentially huge.

These are implemented in org.jfin.date.BusinessDayConvention and org.jfin.date.holiday.HolidayCalendar available as part of the jFin release.

The illustrations in the following sections show how dates are adjusted for an imaginary month where weekends/holidays are marked in orange.

Following
If the date to be adjusted is not a business day then move it forward to the next available business day:

Preceding
If the date to be adjusted is not a business day then move it backwards to the next available business day:

Modified Following
If the date to be adjusted is not a business day then move it forward to the next available business day, unless the next available business day falls in the next month when you should move backwards:

Modified Preceding
If the date to be adjusted is not a business day then move it backwards to the next available business day, unless the next available business day falls in the next month when you should move forwards: