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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3answers
221 views

How is PnL calculated

In Fixed Income, I know that bonds PnL are evaluated depending on where the price lies on price/yield curve at the end of the day, compared to where it started from at beginning of the day. The ...
4
votes
2answers
476 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 ...
0
votes
1answer
20 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 ...
0
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1answer
44 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 ...
0
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1answer
95 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 ...
3
votes
1answer
98 views

Pricing a FixedRateBond in Quantlib: yield vs TermStructure

I am trying to price a simple U.S. treasury in QuantLib, using two methods. The first method calls FixedRatebond.dirtyPrice(...), passing in a YTM and other parameters. The second method involves ...
0
votes
1answer
112 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) = ...
2
votes
1answer
95 views

What is the hedging underlying of MBS

I am working on hedging agency MBSs using treasury bonds. So my question raise as which treasury bond should more likely be a hedging underlying of a MBS. What is the matching criteria usually for MBS ...
9
votes
10answers
17k 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 ...
3
votes
1answer
50 views

meaning of discount term in FRA value

Consider a forward rate agreement on LIBOR (say), which starts 2 months from now, expires after 3 months and has strike $K$, and is based on $3M$ LIBOR -- $FRA_{2\times 5}$. Now the present value of ...
2
votes
1answer
73 views

Introducing credit risk to an already implemented interest rate model

Do any standard/generic approaches exist on how to extend an interest rate model to incorporate credit risk? The first thing that comes to mind would be to just model the credit spread separately - ...
0
votes
0answers
35 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 ...
3
votes
0answers
80 views

Pre- Versus post-2008 Crisis Rates Modeling

Modeling for interest rate derivatives (such as bermudan swaptions) is said to have undergone significant changes since the crisis. Prior to the crisis, counterparty default risk was often ignored, ...
1
vote
1answer
75 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%. ...
1
vote
1answer
103 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 ...
2
votes
1answer
75 views

Discounting based on instrument type

Suppose we have an asset $A$, and we have modelled the cashflows for this asset to be $\{C_{1},\ldots C_{k}\}$ which occur at time $\{T_{1},\ldots T_{k}\}$. Now the present value of the asset can be ...
2
votes
1answer
172 views

Basis point implied volatility of TY notes

As I see people trading 10-year notes are often quoting implied volatilities in terms of daily (or yearly) basis points. While at first I thought it is simply a translation from % to the actual spot ...
5
votes
1answer
830 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 ...
4
votes
0answers
33 views

What type of interpolation should be used in key rate perturbation models?

When perturbing a key rate in order to assess sensitivity of portfolio value, what sort of interpolation is standard? A book I am looking at says linear, but this seems pretty unrealistic to me--and ...
2
votes
1answer
97 views

How to perform significance test on transition matrices

Say you have in your hand a transition matrix published by Moody, and you also collected the rating information for a sample of bonds, which you use to form your own transition matrix. How can we use ...
1
vote
0answers
59 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 ...
2
votes
1answer
50 views

Attributing change in yield as a result of structural change

Suppose your portfolio has $w_0$ amount of bonds with yield $r_0$. Now you buy additional $w_1$ amount of bonds with yield $r_1$, then buy additional $w_2$ amount of bonds with yield $r_2$. ...
3
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0answers
167 views

How are quants able to verify whether their calculated prices are any good

This question is related to the discussion on Model Validation Criteria However it appeard to be very high level to me and I would like to go more into detail. Not working at a pricing desk the ...
5
votes
1answer
242 views

Bond Convexity Treasuries Futures

I know long duration bonds, on a a single bond basis, exhibit convexity however do treasury futures prices and the 10 yr yield exhibit the same property? Below is a plot of continious ten year ...
1
vote
1answer
167 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, ...
3
votes
1answer
101 views

Attributing the change in NII to Shift, Twist and Butterfly

The movement of the zero rate curves can be decomposed into a shift movement (the level of interest rates) and a twist movement (the slope of the curve) and butterfly (the curvature of the curve). If ...
-3
votes
1answer
78 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 ...
1
vote
2answers
224 views

Market overview trading platforms (with OTC)

I am searching for a trading platform for a client. It must include control of trading limits (per user and with regard to the clients portfolio), connection to Bloomberg data, ability to value ...
1
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1answer
363 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 ...
2
votes
1answer
189 views

Pricing credit risky bonds

How do we price credit risky bonds? If I discount the cash flows using LIBOR/zero rates, it won't take the credit riskiness into account. So should I use a rate based on the issuer's credit spread? ...
5
votes
1answer
140 views

Arbitrage with freshly issued bonds

I recently heard someone mention an arbitrage strategy involving selling freshly issued bonds and buying the "old batch" as it has shown that the liquidity in the fresh batch motivates/drives up these ...
3
votes
1answer
206 views

How to manage evaluation date changes in QuantLib while using ImpliedTermStructure Class

I will not attach the whole code 'cause it would be just a huge waste of space and it would be not useful for this question's purpose. What I am going to attach here is a snippet code and its output, ...
1
vote
1answer
156 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 ...
6
votes
2answers
2k views

How to calibrate Hull-White from zero curve?

I am interested in calibrating a Hull-White model to the market. I do not, however, have data on anything except the market zero curves, as all derivatives are being traded OTC. My plan is to ...
2
votes
1answer
190 views

Recovery rate in a structured bond

I need to model the recovery rate of a structured bond whose expected cash flows, if the issuer remains solvent, will be very low. For instance, assume that I need to estimate the recovery amount of a ...
1
vote
1answer
117 views

Fixed Income free research available online

As from the title, I would like to know where it is possible to find free research focused on fixed income markets' themes and topics, such as interest rates, credit risk related fundamentals, new ...
0
votes
1answer
512 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 ...
1
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3answers
573 views

Is there a Bloomberg field for a bonds (upcoming) coupon dates?

For a specific bond I need to calculate the time until each of the upcoming cash flow payments (for obvious reasons). So I wondered if there is a field (bulk data) that gives me all the dates of the ...
0
votes
0answers
487 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 ...
3
votes
2answers
247 views

Question on yield curve fitting from Wilmott on Quant Finance p.529

My last question is related. At the top of p. 529, it says, "From the Taylor series expansion for $Z$ we find that the yield to maturity is given by $$-\frac{log ...
4
votes
1answer
266 views

Yield curve fitting example in Wilmott on Quant Finance p.528

In Wilmott on Quantitative Finance Vol. 2, p. 528, Section 31.4.2, is given a power series expansion for a zero coupon bond $$Z(r,t;T)=1+a(r)(T-t)+b(r)(T-t)^2+c(r)(T-t)^3+\dots$$ then it says to ...
1
vote
2answers
67 views

Is “Issuer and Holder with same strike” meaningless?

I've seen a callable putable bond whose first exercise date is an exercise date both for the holder and the issuer. Moreover both strikes have the same value: 100. I wonder what does it mean. I ...
3
votes
1answer
264 views

Pricing Fixed-To-Floater bond in QuantLib

Wandering through QuantLib's Financial instruments documentation, I noticed no class for fixed-to-floater bonds exist. Then I was wondering what a suitable way to price such an instrument would be ...
1
vote
1answer
278 views

How to derive zero-coupon rates from IRS?

How can I calculate zero-coupon rates from historical IR swap rates? I have a record of IRS for the past 4000 days and I am want to compute the zero coupon rates based on them.
2
votes
2answers
208 views

Basic question about bonds pricing

I decided to recap my knowledge in interest rates, and decided to start with Chapter 4 on interest rates (in 8th edition) of the Hull's book "Options, Futures and Other derivatives". In 4.3 the ...
1
vote
0answers
122 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. ...
1
vote
1answer
223 views

Automatic fixing of missing floating rate in QuantLib's addFixing()

Due to the periodic fixing of floating rate bonds's coupon rates, in order to calculate the bond clean price one must tell the pricing engine to account for previous LIBOR rate fixing. If I am right ...
4
votes
3answers
545 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 ...
0
votes
0answers
63 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 ...
2
votes
2answers
662 views

How can you convert the CUSIP of a bond issue to the CUSIP of the company's stock/

As part of a research project I ran a query on the Mergent FISD database using the WRDS website. The output included the CUSIPs of numerous bond issues (>10000). I am using this data to run event ...