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## New answers tagged fixed-income

0

I have every reason to believe this is a homework so I won't code it for you. In fact, your question is not totally clear, you haven't told us what are the rows and what are the columns. We know it's a 20x20 matrix, but what it's that supposed to be? A common implementation is illustrated below: So you can have a diagonal matrix where the columns are the ...

0

I went on a rant below, but this is actually a trick question. If the time to maturity of the bond is 3 years, if its current yield to maturity is 4.5%, and if you hold the bond to maturity, then the annualized horizon return will be 4.5%, assuming all interim cash flows can be reinvested at the 4.5% yield. If cash flows cannot be reinvested at 4.5%, then ...

1

If the bonds yield goes down by $100 \text{bps}$ and the duration is $3$, the bond price will increase by approximately $3\%$. Without any subsequent movement over the next three years, the bond should yield 3.5% p.a. after the yield rate movement. The return during the total holding period of three years would be approximately: $$3\% \text{(yield rate ... 1 Duration (of which Macaualy is one type) is only a linear approximation of how the bond value will change with a small change in yield. 0 US bond prices are routinely quoted at much finer intervals. For example, you may see a quote of 99-103, which translates into 99+10/32 + 3/256. Further, although there may be a minimum tick size for "prices," so such constraints are imposed on "yields" (at least in the US). In fact, yields are frequently computed up to 15-20 decimal places. 2 As @Alex C mentioned, they are all equivalent. Specifically, 1 and 3 are the exact same thing. (1 is missing an n - unless it's a one year bond). 2 is the intuitively the equivalent of putting a smaller amount of money today in the bank (whatever rf inst. guarantees the i rate of interest) to have same payments as the bond in the future. Since this ... 3 The change of the price P(y) if the yield changes from y to y+\Delta y is$$ \frac{P(y+\Delta y) - P(y)}{P(y)} = - D \Delta y + \frac12 C \Delta y^2, $$where D is the duration and C is convexity. For small \Delta y the square is much smaller. Thus the duration component dominates. 3 DV01 is the dollar variation in a bond's value per unit change in the yield. https://en.wikipedia.org/wiki/Bond_duration IR DV01 is the dollar value change for a 1bp upward parallel shift in interest rates. http://dataforthoughts.blogspot.it/2009/09/economics-of-negative-bond-cds-basis.html 0 the negative and positives in the same series are a result of negative convexity. stated differently, the asymmetry in the series is a result of negative convexity. These relationships, however, are not permanent and may flip. 0 Look at slide 3 of Mod 4: Fixed Income Derivatives: Bond Forwards, that's the relevant equation.$$ G_0 = \frac{E_0^\mathbb{Q}[Z^j_t/B_t]}{E_0^\mathbb{Q}[1/B_t]}  Where $G_0$ denotes the price of the forward at $t=0$, $E_0^\mathbb{Q}$ is the risk-neutral price at $t=0$, $Z^j_t$ denotes the ex-coupon price of the bond at time $t$ and state $j$, and $B_t$ ...

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