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 ...
6
votes
3answers
6k 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 ...
1
vote
1answer
132 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 ...
2
votes
2answers
97 views
RQuantLib, Hoadley and Bloomberg YAS: fixed rate bond pricing differences?
I'm trying to price a fixed rate bond one year from now on.
The bond is the PEUGOT 7 ⅜ 03/06/18, whose ISIN code is FR0011439975. I'm using such a specific example because in this way everyone can ...
3
votes
0answers
60 views
RQuantLib: any difference between FixedRateBond() and FixedRateBondPriceByYield() with flat term structure?
Please, consider the following functions from RQuantLib package:
FixedRateBond()
...
0
votes
1answer
270 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. ...
7
votes
2answers
129 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
vote
1answer
47 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 ...
1
vote
3answers
169 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 ...
7
votes
3answers
238 views
What is the relationship between Forward measures and LMM?
I am reading the book "Term-structure Models: A Graduate Course" by D. Filipovic. In chapter 7 they define the $T$-Forward measure through the density process
...
3
votes
0answers
62 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 ...
3
votes
3answers
200 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 ...
1
vote
2answers
116 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
196 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 ...
4
votes
1answer
101 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 ...
2
votes
1answer
230 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 ...
2
votes
0answers
112 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
vote
1answer
46 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 ...
1
vote
0answers
35 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?
0
votes
1answer
91 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
402 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 ...
2
votes
0answers
113 views
3
votes
2answers
197 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 ...
1
vote
3answers
193 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.
2
votes
1answer
164 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 ...
5
votes
4answers
467 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 ...
5
votes
1answer
217 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
236 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 ...
7
votes
1answer
331 views
Do people use unbounded interest rate models, and what alternatives exist?
A simple interest rate model in discrete time is the autoregressive model,
$$
I_{n+1} = \alpha I_n+w_n
$$
where $\alpha\in [0,1)$ and $w_n\geq 0$ are i.i.d. random variables. When working with ruin ...
6
votes
1answer
335 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
1answer
163 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
votes
0answers
118 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 ...
1
vote
3answers
273 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
2answers
158 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 ...
3
votes
1answer
82 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
3answers
414 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 ...
8
votes
1answer
394 views
Hedging long municipal bond portfolio using BMA/SIFMA
A question from one of my members.
Anyone have experience hedging a long municipal bond portfolio using BMA / SIFMA swaps? Anything you can share regarding sizing and structuring the swap and ...
2
votes
1answer
150 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
207 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
1k 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
191 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
218 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 ...
9
votes
2answers
1k views
How to get list of all CUSIPS/ISIN?
I want a list of all CUSIPs/ISINs. It would be nice if they were also categorized (e.g. Bonds/Funds etc). Where can I get such a data?
4
votes
1answer
348 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
232 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
129 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
303 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 ...
6
votes
2answers
682 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 ...
2
votes
1answer
151 views
Do bond credit ratings suffer from “ratings inflation”?
A friend of mine who studies game theory suggested that credit ratings from the bond ratings agencies, such as Moody's, S&P, and Fitch, may suffer from a sort of "ratings inflation" similar to the ...
6
votes
2answers
606 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?
3
votes
1answer
248 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 ...
