daycount

Day count, in finance, refers to the convention used to determine the fraction of a year between two dates for interest accrual, pricing, and settlement calculations. The day count fraction converts calendar days into a year-long equivalent so that interest, yields, and cash flows can be computed consistently. Different markets and products specify different conventions, and the choice can materially affect amounts over time.

The most common conventions include Actual/Actual, Actual/360, Actual/365 (Fixed), and 30/360 with several variants. Actual/Actual uses the actual number of days and the actual length of the year; if a period spans multiple years, the fraction is often calculated by summing the year-by-year fractions. Actual/360 and Actual/365 divide the actual days by 360 or 365, respectively, regardless of leap days in the calendar. The 30/360 family treats every month as having 30 days and a 360-day year, with variations in how endpoints are counted. These conventions are widely used in bonds, loans, swaps, money markets, and mortgages.

The day count convention affects accrued interest, coupon calculations, and pricing. Since different conventions yield different year fractions for the same date range, contracts specify the applicable method, and changes in convention can alter cash flows, yields, and risk profiles. In practice, market conventions vary by instrument, jurisdiction, and counterparties, making awareness of the chosen day count essential for accurate valuation and comparison.