Take the 2-minute tour ×
Quantitative Finance Stack Exchange is a question and answer site for finance professionals and academics. It's 100% free, no registration required.

Given for example 6 bond prices and their respective 6 cashflows over a time period of 6 years, I have managed to derive the zero-coupon yield curve using the bootstrap method.

However, it got lost on me when it came to deriving the par-yield curve.

Any help on this?

Thank you!

share|improve this question
add comment

1 Answer 1

If you look at wikipedia then you find the definition that a par-yield is the coupon rate, such that bond prices are $100$. This is the definition. Consider $N$ bond with a given coupon rates $c_i$, times to maturity $T_i$ prices $P_i$,for $i=1,\ldots,N$. Then you can calculated the yield-to-maturity for each bond $y_i$. Some mathematics reveal that a bond with coupon rate equal to its yield-to-maturity is priced at par (its price is $100$).

Thus the par-yield curve is a plot of the time-to-maturity and the yield-to-maturity of your bonds. As a next step you could derive a zero-rate curve from it by bootstrapping.

share|improve this answer
add comment

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.