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I want to make index for the bond market, I read several methodologies and I didn't find a divisor in the equations used for bond index calculation.

As i know from the stock indices that a divisor is used to ensure that (corporate actions/new re balancing for index constituents) do not significantly alter the index.

As I noticed that there is no divisor in bond indices, how do I calculate the bond index in case of the presence of corporate actions? As I need to prevent a change in the value of the index due to these corporate actions.

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The kinds of corporate actions that would affect equities in the index context are splits, reverese splits, stock dividends, etc. E.g., you start out with 1 share, and the next day you have 2 shares worth half the old price, but the same net claim on the corporation.

But these corporate actions don't affect bonds. You have an obligation promising to repay some amount of money, and it's not linked in any way to the equity, and is not effected by stock splits.

(If you were looking at convertible bonds, then indeed if a bond can be converted to some shares at some price, then these would be adjusted for a split, but their product would stay constant.)

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  • $\begingroup$ presumably the indices are adjusted for take-outs and defaults? Not sure if this is what the OP had in mind. $\endgroup$ – user42108 Mar 31 at 15:17
  • $\begingroup$ I think OP meant stock splits. Not e.g. mergers/acquisisions. $\endgroup$ – Dimitri Vulis Mar 31 at 15:20

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