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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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 ...
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1answer
177 views

“Friendly” papers about maximum smoothness yield curve modelling

I'm currently looking to implement some version of the yield curve modeling techniques in the maximum smoothness framework. The papers I have found so far explains the theory pretty well, but I find ...
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1answer
194 views

Need to match my bond price calculation to that of Bloomberg, currently failing hard

I have a fixed-coupon bond with the following characteristics: ...
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1answer
58 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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1answer
389 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 ...
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1answer
117 views

Bond Spread Drivers

I have some work to do on the drivers of government bond spreads - ie. across terms (not across governments) of the yield curve, say 5yr and 20yr bond spreads from the same government issuer - and am ...
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1answer
298 views

Interpolating spot rates given intermittent coupon-bond prices.

I'm trying to bootstrap spot rates given coupon-paying bond data. To simplify my problem, assume we are working with only 3 given data, the price/coupon rate on semi-annual bonds maturing in 0.5, 1, ...
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1answer
235 views

Bond futures - calendar spread pricing

I am looking on literature and models on pricing a bond futures' calendar spread. assuming the basket of deliverable bonds is the same and the ctd is the same, what are the factores determining the ...
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1answer
405 views

Yield on Fixed income futures

I am trying to get a simplified model of the DV01 for the US 10YR Note futures but I cant figure out what the current yield is. When I back out the implied interest rate on the current TYM3 futures ...
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1answer
59 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 ...
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1answer
48 views

Various ways to choose bonds for a butterfly strategy?

What are the various ways to choose bonds for a butterfly strategy? For eg., I already know the most common one i.e., choosing short and long term for the wings (barbell) and the medium term for the ...
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1answer
29 views

UST Yield Curve Forecasting - Bond Structure Testing

I have a project in mind that I am working on, but have little idea where to start. I am a relative newcomer to python (about 1 years exp.) and limited knowledge of quant finance. What I would like ...
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1answer
62 views

Key Rate Duration for MBSs greater than Key Rate Tenor

Key Rate Durations (KRD) are essentially some fixed income instrument's price sensitivity to a non-parallel shift in interest rates (i.e., a shift at the "Key" Rate). For example, a 10-year bond's ...
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1answer
340 views

What's the intuition behind DTS(duration times spread) in fixed income?

I am having some difficulty grasping the concept of using DTS to measure credit risk. In the equity world, one typical measure of risk is beta, which is quite well-defined as the exposure to a common ...
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1answer
258 views

Bond Portfolio Immunization - Duration Matching

**Question is at the bottom** Suppose you have a portfolio of bonds A, B, and C with the following characteristics: (the "Frequency" column is the # of coupon pmts per year and also the # of ...
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1answer
87 views

If we modify duration, should we modify bond price? Options Futures and Other Derivatives

In Example 4.5 of Section 4.8 on Duration of Options, Futures and Other Derivatives (p.92), a bond's price and duration are computed assuming continuous compounding where the bond yield is y = 12%. ...
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0answers
70 views

What is the algorithm for the Fama-Bliss instrument selection?

Fama-Bliss discount bonds are defined through a straight forward calculation (Famma, Bliss 1987). For the purposes of a project I need to derive forward rates, yields &c. for periods not included ...
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0answers
616 views

What is the best alternative of Quantlib library

We need to build a Fixed Income Portfolio Risk Analytics solution. Somehow due to administrative reason we can't use Quantlib which is written in C++, even call it through SWIG via JNI. We have tried ...
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0answers
135 views

Market Standard Pricing Models for Fixed Income Securities (Vanilla)

To clarify my heading, I have been searching for a material that consolidates all standard Fixed Income Security Pricing. E.g. ...
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0answers
302 views

Convexity adjustment

I have a problem with the underlying assumption in the future/forward convexity adjustment. If I understand correctly, the assumption is, if I am long ED, I earn money when rates go down and invest ...
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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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3answers
851 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 ...
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1answer
152 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 ...
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2answers
51 views

Par Yield Curves vs Zero Curves

Does it make sense to look at par yield curve for German bonds in the current environment? Because low rates mean that a lot of bonds are trading above much above par (even around 150!). I would ...
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2answers
510 views

30360 Daycount Count Convention to find NPV for Bonds

Using a 30/360 day count convention, how can you value the NPV of these cash flows and the discount factor? I know how to discount cash flows but how does it differ using a 30/360 approach? What is ...
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1answer
268 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 ...
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2answers
81 views

In bond pricing, is negative convexity better than positive convexity?

Say that I have two bonds and one of them has positive convexity and the other negative. Which one is better (assuming that you only care about convexity)? I understand that high convexity is ...
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1answer
240 views

Bloomberg Zero Coupon Rates

As some of your may know from my other posts, I am working on a Dynamic Nelson Siegel (DNS) based relative value trading model. On simulated data (which satisfies all the assumptions) of the DNS it ...
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1answer
66 views

OIS discounting pre and post crises

I have a Dynamic Nelson Siegel (DNS) based rv model. I want to know if I can use pre and post-crises curves interchangeably in my calibration and out of sample testing. I.e. those without OIS ...
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1answer
172 views

How to price zero coupon bonds with short term rates model?

I want to find the price of Zero coupon bond given a short rate model. I think about Merton, Vasiceck, CIR, Ho & Lee models. 1) Given a simulation of $r_t$ how can I calculate $ P(t,T) = ...
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1answer
668 views

Deriving the par-yield curve

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 ...
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2answers
290 views

Matlab; How to specify Coupon frequency for Interest Rate Swap

I'm trying to price an interest rate swap and would like to change the default coupon payment frequency from 1 a year to 2 or 4 a year. I'm using ...
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1answer
3k 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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0answers
9 views

Cost of carry for posting bonds as collateral

Cost of carry for posting bonds as collateral How do you calculate cost of carry for posting bonds as collateral?
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19 views

Is it possible for two securities to have the same first 8 characters of a cusip, but differ in the check sum?

CUSIP is a 9 character long identifier. The last digit is a check sum checking the first 8 previous characters. This seems to me that it is not possible for two securities to have the same 8 ...
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1answer
25 views

Total return index for interest rates (EURIBOR 3M)

I would like to calculate a daily total return index for the EURIBOR 3M. • Should I freeze at the beginning of each qurter die rate? (With this methology the developing of the index depends on the ...
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0answers
29 views

Where can I find an historical data source for Fixed Income instruments?

We would like to find a data source for fixed income instruments. The information we would like is: Issuer Credit rating Terms Price The information needs to be available over a period, for ...
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2answers
73 views

how to calculate a cross-currency swap in basis pt?

This question has been bugging me for awhile now and I've been trying to find a definite answer, however, no avail... My question, in specific, relates to the USD/CNH CCS rate. From what I understand ...
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0answers
20 views

Incompatibility of Lognormal Forward Model (LMM\BGM) and Lognormal Swap Model

In his paper On the distributional distance between the Libor and the Swap market models (and also in his book about IR modeling) D.Brigo says: 10, 11, 12 are defined in the end of message. Do I ...
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0answers
26 views

Variance of “hedged” term structure portfolio increasing?

I'm attempting to use PCA to hedge a small fixed income portfolio. I start with one particular bond and chose the nearest other bond to hedge the 1st principle component. This decreases the portfolio ...
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0answers
285 views

Bloomberg Pricing Sources: TRAC vs. BGN vs. BVAL etc

Sorry, I'm very new to using Bloomberg as a tool, so please forgive the naïve question. I couldn't find much information after some cursory online searches, so I figured I'd ask here. Particularly ...
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0answers
32 views

Fixed Income Swap Sharpe Ratio Calculation

I have a Fixed Income based strategy based on swaps. Q1.) Given that swaps are based on a "notional" principal and no actual exchange of principal's takes place, is it fair to assume a funding cost ...
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0answers
16 views

'C' Marker in PSA for CMO

I will occasionally get a 'C' as part of a PSA in my CMO oddlot data. Most of the numbers will be normal - 277, 297, 269. Then 10C, 20C, 13C. What does the C represent?
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1answer
66 views

How to calculate the pre-tax cost of debt for a mix of bonds allotted to a company?

I need to calculate the effective interest rate a company X is paying on the total debt it has been loaned (to arrive at the Cost of Debt) for the FY 2011-12. Its long term borrowings are a mix of ...
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0answers
43 views

Credit Spread - pricing Option and Fixed Income

hi how do you handle credit spread 1. For Option with Equity underlying 2. For Fixed Income/Bond I understand there're two options: a. Expected Loss from Probability of Default & Recovery Rate ...
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0answers
64 views

Input for unanticipated risk premium estimation

In the paper "Economic Forces and the Stock Market" by Chen, Roll and Ross, unanticipated risk premium (URP) is tested as a potential risk factor for stock returns. This factor is commonly calculated ...
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0answers
88 views

DCF of Arbitrary Dates Cash Flows

I am having a problem understanding discounted cash flows. I appreciate your patience and help. Lets say I have a bond that I want to price. ...
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0answers
153 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 ...
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1answer
145 views

DCF Zero Coupon Bond

Using a 30/360 day count what is the exact formula to discount this single zero coupon bond? ...
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1answer
92 views

How can foreign investment have a negative figure?

Just looking at http://www.tradingeconomics.com/japan/foreign-bond-investment Wondering how can foreign bond investment be negative? You can have 0 investment, you can have positive investment, but ...