Trying to understand this answer here, but having difficulty. Would appreciate it if someone formally, mathematically wrote down the precise definitions here.


What is a "financed position"?

"how much yield can increase before a financed position starts to lose money"

What does this mean? Yield of what, exactly? What yield is this is? Is this yield-to-maturity, current yield, etc? Can someone write this down mathematically?

In dollar terms, carry = (ending accrued interest – starting accrued interest) – (starting price + starting AI) x repo rate x year fraction

What is "starting"/"ending" accrued interest, "starting" price (is this the bond's clean price?).

  • $\begingroup$ "financed position" = you buy the bond using borrowed money (=> you have to pay interest at the Repo rate on the amount you borrowed). $\endgroup$ – noob2 Oct 27 '17 at 15:20
  • $\begingroup$ Learn more about bond trading. When you buy a bond it is quoted at a certain "price", however this is not what you pay to get the bond, you have to pay "price" plus another item called "the accrued interest" for each bond you buy. I thought everyone knew this. $\endgroup$ – Alex C Oct 28 '17 at 13:37
  • $\begingroup$ I know what accrued interest is, but what is "starting"/"ending" accrued interest? Googling these terms don't give anything helpful. Is the "starting price" the clean price of the bond? $\endgroup$ – user98012390 Oct 28 '17 at 15:18
  • $\begingroup$ Pretend you buy the bond now (say at $t_0$) using borrowed money, then sell it and repay the loan at a later time ($t_1$). "Starting" means at time $t_0$, "ending" means at time $t_1$. Starting price is $P_{t0}$, the clean price of the bond now. $\endgroup$ – Alex C Oct 28 '17 at 15:29

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