What is the industry norm to compute a sharpe ratio for a bond? For a stock one would typically take a time series of daily returns, compute the average daily return, compute the standard deviation of the daily returns and use this to compute the Sharpe.
In the absence of credit risk, how does one go about this problem for a bond? Assume we hold a T period Bond, with a coupon of C. I was thinking of the following, but wasn't sure if correct.
- For the risk (denumerator): duration * stdev(T-yr yield)?
- For the reward (numerator): ytm?
Or should one use historical average of holding-period-returns for the reward? and also historical stdev of holdingperiod returns (multiplied with duration) for the risk?