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I'm looking for information into how financial institutions and their core processors perform their calculations. More specifically, how the month and year lengths are factored in.

First, are there terms for the different ways a financial institution can perform calculations using a fixed or dynamic month and year length? For example, I have seen references to the following models:

  • 30/360
  • Actual/360
  • Actual/365
  • Actual/Actual

Do these different options have associated terms (names)?

Second, I am interested in information regarding the popularity of one method vs the next. Are some more common than others? I haven't seen but one mention of the Actual/Actual model. I imagine this topic may be discussed somewhere in FDIC documentation, but I haven't had much luck locating this information.

Lastly, do financial institutions occasionally use multiple models?

Sources to information are much appreciated.

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  • What do you mean by "Do these different options have associated terms?" Those are the terms used to describe them.
    – Hart CO
    Commented Oct 2, 2021 at 3:17
  • @HartCO by that I mean, do these methods have other terms (names) one can associate with them. E.g. if one is potentially more common, one may call it 'regular' (if that were an industry understood term). Commented Oct 2, 2021 at 3:22
  • Ah, I see, I just think of them as interest calculation methods but maybe there's a better term. I've never heard one referred to as 'standard' but certainly some are more common than others.
    – Hart CO
    Commented Oct 2, 2021 at 4:28

1 Answer 1

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Do these different options have associated terms (names)?

They are called "day count conventions". They are usually referred to by those names (e.g. "thirty/three-sixty")

Are some more common than others?

It depends on where they're used. Loans may use one method more commonly than bonds, for example, and swaps may use another method. Different markets can also use different conventions.

Lastly, do financial institutions occasionally use multiple models?

That's a vary broad question since "models" is a very broad term - certainly different models are used to value different things, and a firm can use different models that have different assumptions to value the same thing, either for consistency or for comparison.

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