Securities which obligate the borrower/issuer to make payments on a fixed schedule. Fixed income securities include sovereign, corporate and municipal bonds, corporate loans, and securitized lending (e.g., ABS). "Fixed" refers only to the schedule of obligatory payments, not the amount, and may ...

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1answer
56 views

Annual Percentage Rate and Yield

I found references relative to US where the Nominal Annual Percentage Rate or simply APR is defined as the simple interest rate (i.e. proportional to time and without compounding). Instead the ...
7
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2answers
218 views

Is there a comprehensive reference book on US fixed income conventions?

In Canadian fixed income markets there is a nice handbook called Canadian Conventions in Fixed Income Markets (PDF). It contains detailed market standard pricing formulas for calculating prices, ...
1
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3answers
2k views

How to hedge the fixed leg of a swap contract?

I happened to get this question for Fixed Income Swap contract. (let's assume it's it's not cross currency). If the fixed leg is paying 10% interest rate in this contract, but in the market the ...
3
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0answers
126 views

is there a mapping from Altman Z-score for private companies to bond ratings or probability of default?

On wikipedia, there is a formula to calculate the Altman Z-score for private companies: Z-score estimated for private firms: T1 = (Current Assets − Current Liabilities) / Total Assets T2 = Retained ...
4
votes
3answers
500 views

What's the algorithm behind Excel's ACCRINT?

This question was originally posted on Stackoverflow: As part of the Formula.js project, I'm trying to re-implement Excel's ACCRINT function (in JavaScript, but the language should not matter). I've ...
2
votes
2answers
545 views

CTD and bond futures

I am reading a chapter on bond futures in Fabozzi's book. It states that without CF (conversion factor) the CTD (cheapest to deliver) would be the bond with the longest maturity and highest coupon. ...
2
votes
3answers
690 views

What is the clean price and dirty price of a risky bond?

Following up on this question: Yield of a risky bond, what is the definition of clean and dirty prices for a risky (defaultable, catastrophe, etc.) bond? I would think the dirty price should ...
2
votes
0answers
256 views

Yield Curve Volatility

Let you have several issuers, and let each issuer have its yield curve built up with liquid plain vanilla fixed rate bonds. Each yield curve has its slope and its curvature, and they obviously change ...
1
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1answer
51 views

Why might a manager consider using an interest-rate in which the notional principal amount declines over time?

Say swap would be used to convert the payments of its portfolio of fixed-rate residential mortgage loans into a floating payment. Why might a manager consider using an interest-rate in which the ...
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0answers
38 views

How does a covered bond characteristics compare to a mortgage security for credit enhancement?

I need help with understanding how does a covered bond characteristics compare to a mortgage security for credit enhancement?
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votes
1answer
132 views

Price difference between bond cash and futures

I used to trade German and US govt. bond futures and I am now having trouble understanding the price difference of these markets against the cash market. For example, the 10 year german government ...
2
votes
2answers
2k views

Interpretation of Macaulay Duration

I am having a difficulty conceptualizing the meaning of "Macaulay duration" - I want to note I completely understand the math, this isn't the issue. Modified duration & Efficitive Duration make ...
4
votes
1answer
179 views

Reasonable Hull & White parameters

I am using a Hull & White model to simulate forward rates on US swap curve from the 1.10.2012. This is a part of a bigger picture, and I am interested in some reasonable values for the parameters ...
0
votes
1answer
2k views

Calculating pre-tax cost of debt

This is a simple problem but I'm not sure about one aspect of it. A company has 15 year bonds outstanding, with a 5% annual coupon, a face value of \$1000, and a current market value of \$1100. ...
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votes
0answers
129 views
2
votes
1answer
237 views

desk's performance

I need your point of view in evaluating the monthly performance of a desk. I have the daily credit risk capital requirement (A); the net banking income or GNP (B). What is the best measure of ...
1
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3answers
495 views

Treasury Bond Yield Curves in R

Does anyone know if I can access interest rates series from the treasury using R? I tried yahoo! Finance and it doesn't seem to have this kind of information.
3
votes
2answers
299 views

How to calculate discounted inflation and growth?

Given the nominal bond yield and the inflation index bond yield (earning yield), how would one calculate the discounted inflation rate (discounted earning growth rates)? These two factor seems to ...
2
votes
1answer
390 views

Where can I find corporate bond spreads?

I am trying to price a 30 yr bond maturing in December 15, 2035. The bond is rated A- (S&P). Where can I find the spreads for corporate bonds rated A- maturing in 23 years (December 2035)? I ...
6
votes
1answer
552 views

About Option Adjusted Spread, rate curves and bonds comparison

I have few questions about using OAS as a measure of risk: does OAS allow for comparison between bonds with and without embedded options (e.g. a callable bond against a plain vanilla one against a ...
4
votes
1answer
400 views

VaR for corporate bonds

I am trying to create a simple risk calculation for the portfolio (ignoring correlations for the moment). I have some corporate bonds with limited daily price changes. Any one have ideas how I can get ...
1
vote
1answer
324 views

T-note returns from T-note yields … derivation of Damodaran's formula

Damodaran's historical data on 10-year T-note returns (found here) uses the following formula to calculate the 1-period total return on a T-note ($R_1$) given the 10-year constant maturity ...
0
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0answers
143 views

Looking for FpML best practices

We want start using FpML within our organisation; where message will be sent using FpML. What are best practices to do this ? If anyone who have used Tools as well as; i want to use FpML for ...
6
votes
1answer
511 views

Implied forward rates puzzle

Here's an interesting cocktail puzzle related to the term structure of interest rates. One of the primary competing theories for explaining the term structure of rates is the Rational Exepctations ...
1
vote
3answers
607 views

How to properly interpret accrued interest of bonds

Ever since I work in finance I was wondering what accrued interest (AI) are good for (see the wikipedia article for a short introduction). I think I have a clear picture in mind now and the usual ...
3
votes
1answer
119 views

Do Bond Put Dates always fall on Coupon Dates (for non-zero coupon bonds). Calculation rules for Coupon Dates

This may not be the most appropriate SE site to ask this question, but I can't seem to find a better place to ask, so here goes: Do Puttable Bonds' put dates always fall on Coupon Dates? When they ...
3
votes
2answers
223 views

Is it true that pricing an IR swap doesn't require any stochastic model but calculation of the PFE of an IR swap would?

Pricing an IR swap doesn't require any stochastic model but calculation of the PFE for an IR swap would require the Hull White Model or any other stochastic short rate or forward rate model. Is ...
2
votes
1answer
208 views

Risk Decomposition of Index linked Bonds

Do you know how to decompose the risk of index linked bonds? To value a inflation linked bond, one plugs the real zero curve into the bond PV calculation, the real interest rate is as the fisher ...
3
votes
1answer
287 views

How do I backfill the price of bonds for backtesting?

I need to backfill the price of bonds for testing a startegy. The method employed is: Regressing the YTM of the bond against a benchmark. Using the regression estimates to calculate the YTM for the ...
6
votes
3answers
2k views

What is a real world example of negative forward interest rate?

As the title says, I am looking for a real world example where a forward interest rate is negative. Theoretically this is not a problem at all, if I look for a 3M forward interest rate that starts ...
0
votes
1answer
237 views

Where to find introductory material on leveraged loans?

What are some good, preferably free, introductions to leveraged loans, also known as syndicated loans or bank loans? The introduction should describe the basic mechanics and very importantly provide ...
2
votes
0answers
291 views

What is an appropriate hedge ratio for hedging a credit instrument with equity of the same issuer?

Given a bond and a stock issued by the same issuer, what is the appropriate ratio of bond-to-stock one should hold in order to minimize the specific risk to that issuer? Equivalently, what is the ...
10
votes
8answers
13k views

What is the difference between Option Adjusted Spread (OAS) and Z-spread?

I am preparing for the CFA level 2 exam, I got confused by the concept Z-spread and OAS. When a call option is added to a bond, since it is not favorable to the bond buyer, they would require more ...
4
votes
1answer
409 views

Discrete time Ho lee model

This is my first question in this forum. I am stuck with my current testing the Ho Lee model. I am having difficulty computing the perturbation factor $\Delta$. The ho lee model should be completely ...
4
votes
1answer
318 views

Pricing a bond future with a basket of deposit futures

I have a future on a two-year UK government bond that I wish to price. The bond future expires in 3 months. I was thinking of building a portfolio of 3-month deposit futures (1 x 3 month deposit ...
6
votes
1answer
138 views

Should we apply practical constraints on the distribution of monte carlo paths?

to limit interest rate paths to a 'reasonable' range (if we could define reasonable). Now we calibrate log-normal skew and mean reversion monthly to robust basket of atm swaptions and in and out ...
5
votes
1answer
368 views

Can duration gap analysis be applied to mortgages?

Can a mortgage loan be treated like a bond and its duration calculated using the bond duration formula? More precisely, can I calculate the loan portfolio duration for duration gap analysis, with ...
3
votes
3answers
679 views

What are the limits of bond portfolio immunization against interest rate changes?

I'm currently reading through an article on bond portfolio immunization against changes in the interest rate. I learned that the immunization can be done against instant changes in interest rate ...
3
votes
1answer
276 views

Which approach is better for modeling option exercise strategies, rational or behavioral?

This question is most relevant to the evaluation of embedded options, such as the refinancing option granted to borrowers in the mortgage and bank loan markets, or the call option present in some ...
5
votes
1answer
966 views

How would I value a perpetual bond with an embedded option?

I am trying to work out how to value the following transactions. It should be straight forward, since it breaks down into a series of well known instruments, yet I am not sure how to evaluate it: ...
4
votes
1answer
1k views

What is the replicating portfolio of swaptions for a constant maturity swap (CMS)?

How do you replicate the payoff of a constant maturity swap rate? That is, if the payoff of a contract pays the 5-year swap rate every year for 10 years, how would you replicate this payoff using ...
6
votes
2answers
246 views

Why is there a price difference between 30 year principal and interest STRIPS?

Sorry if this is obvious, I am not a professional. I like to trade 30 year treasury zero's. I have noticed that the price for a 30 year principal payment is never the same as a 30 year interest ...
5
votes
1answer
710 views

Correct way to calculate bond's Yield-to-Horizon

I'm creating some .Net libraries for bond pricing and verifying its correctness with a bond pricing excel spreadsheet (Bond Pricing and Yield from Chrisholm Roth) but I believe it calculates the Yield ...
5
votes
1answer
290 views

How to value a floor when a loan is callable?

Certain bank loans pay a spread above a floating-rate interest rate (typically LIBOR) subject to a floor. I would like to find the value of this floor to the investor. Assume for this example that ...
7
votes
1answer
157 views

How to handle coupon payments when pricing a bond with an embedded option?

I'm using a binomial tree to price a bond that has an embedded call or put option. On every node that has a coupon payment, do you include the coupon payment then max/min out the value, or do you ...
7
votes
1answer
2k views

How to estimate probability of default from bond prices?

How do you use bond prices/yields to infer probabilities of default? I would think of it as follows: Create a relationship between default free (e.g., Germany) and defaultable (e.g., Greece) bond ...
6
votes
2answers
1k views

Why is the SABR volatility model not good at pricing a constant maturity swap (CMS)?

I have heard that the SABR volatility model was not good at pricing a constant maturity swap (CMS). How is that?
6
votes
2answers
1k views

Is Duration really the slope of the Price-Yield curve?

When looking at the Price-vs-Yield graph for a fixed rate instrument, we are often told that the duration is the slope of that curve. But is that really right? Duration is (change in price) divided ...
6
votes
1answer
346 views

How to build the short end of a zero coupon curve for non-core Eurozone countries?

I am in the process of building zero coupon curves for some countries in the Eurozone. I have the following data sets: Euribor and EONIA Swap rates Bond price and yields The bond prices (and thus ...
5
votes
4answers
658 views

What is the connection between default probabilities calculated using the credit rating and the price of a CDS?

I'm working on a tool to price Credit Default Swaps. I've already done the standard pricing tools. I'm working on a pricing tool which uses the credit rating for the default probabilities used in the ...