Let's say there are about 100 illiquid EM bonds. I would like to construct a Price Index of these bonds to see the overall performance of these instruments. I have their issue volume
(number of bonds x face value) that will be used to find each bond's weight. However, after some time some of the bonds will mature or will be excluded if their rating falls. Also, there will be some new issues which will qualify for inclusion to the Index. Can anybody tell how can I effectively account for such events?
As per my findings there are two basic types of Price Index construction approaches - Paasche and Laspeyres. But thus far I have not encountered them in some of the bond index construction methodologies.