Given for example 6 bond prices and their respective 6 cashflows over a time period of 6 years, I have managed to derive the zero-coupon yield curve using the bootstrap method.

However, it got lost on me when it came to deriving the par-yield curve.

Any help on this?

Thank you!


If you look at wikipedia then you find the definition that a par-yield is the coupon rate, such that bond prices are $100$. This is the definition. Consider $N$ bond with a given coupon rates $c_i$, times to maturity $T_i$ prices $P_i$,for $i=1,\ldots,N$. Then you can calculated the yield-to-maturity for each bond $y_i$. Some mathematics reveal that a bond with coupon rate equal to its yield-to-maturity is priced at par (its price is $100$).

Thus the par-yield curve is a plot of the time-to-maturity and the yield-to-maturity of your bonds. As a next step you could derive a zero-rate curve from it by bootstrapping.

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