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Questions tagged [fixed-income]

Securities which obligate the borrower/issuer to make payments on a fixed schedule. Fixed income securities include sovereign, corporate and municipal bonds, corporate loans, and securitized lending (e.g., ABS). "Fixed" refers only to the schedule of obligatory payments, not the amount, and may ...

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12 views

Yield Curve Trading Strategy Explaining Books

Recently I really enjoyed being here while getting great recommendations. Would like to thank you all. Could you please recommend some books/papers on trading strategies, lets say yield curve ...
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19 views

Would bonds issued in the EU be comparable to UK after Brexit

We have been treating bonds issued in UK as a good benchmark to price bonds issued in the European Union - or vice versa. Does this still make sense post-Brexit?
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52 views

What's a reasonable way to extrapolate a bond curve?

I have a corporate bond curve which stops at 15 year maturity. I want to extrapolate the curve to 25 year maturity. I'm looking for a reasonable approach, not necessarily deeply technical. Thanks ...
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1answer
48 views

Bond Overall Return vs Yield to Maturity

I've been working on what I had hoped to be a simple model demonstrating that a bond "returns" its yield-to-maturity over its life. However, whatever data I use, I end up with a return that is a ...
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2answers
77 views

Why rise in repo rates leads to increase in forward bond prices?

Why repo rates increase is causing forward price of bond to increase. Confused with two arguments below Explanation 1 (Collaterizied loan) If repo rates are higher then it means that its very high ...
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0answers
18 views

Treasury Realized Repo vs Expectations

If a bond is special in 3-month term repo and it turns out that the realized path is LESS special than expectations, would the spot price of the bond in 3-months be cheaper than what the forward ...
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2answers
76 views

Paper recommendation with examples

Could you please advise me some papers/working documents with applications mainly focused on Fixed Income/Financial Engineering (Numerical Methods) as the one in the link below? Preferably on Matlab, ...
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2answers
75 views

How does one price the market value and estimate the fair value of a bond futures roll?

Consider the current situation: we are entering December, meaning that the December futures are being rolled into the March futures (i.e. traders are selling their holdings of December futures ...
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2answers
48 views

Time to maturity of a bond not divisible by payment period

I am relatively new to the topic of quantitative finance - at the classes I got an exercise about "2.5 year bond payed annually". Therefore I have a question about the time of payment of interest. The ...
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22 views

Derivation of CIR interest rate model [duplicate]

I am trying to understand the derivation of the Cox-Ingersoll-Ross interest rate model. This has a stochastic differential equation of the form $$dr=(\eta-\gamma r)dt + \sqrt{\alpha r} \space dX$$ ...
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35 views

Beta between HYG and Bond

Do you see a problem using HYG ETF as the independent variable when calculating beta vs High yield bond? One thing I am concerned about is that the volatilities of the 2 assets are different as the ...
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2answers
82 views

Reconstruct yield curve from principal components

I am currently building a model which aim is to model shocks to the yield curve (i.e. 25bps hike in the short rate). Currently I am looking at a swap curve from which I derive the PCs. Assessing the ...
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0answers
38 views

Duration of a FRN in continuous time interest rate model

This question was inspired by my attempt to understand the duration of a floating rate note, or FRN for short. Several answers, like this, say the duration of a FRN is just time to next coupon payment....
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12 views

Interest rates in a dedication model

In a discrete time dedication model (dedicated portfolio theory) is it more correct to use spot rates or forward rates as a proxy for the risk free rate for each time periode? https://en.wikipedia....
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38 views

Drivers of front Eurodollar front future price

I know the front Eurodollar is most closely tied to 3Mo LIBOR fix published daily, as that is what it settles to. I also know information that affects expectations of very short term rate hikes will ...
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1answer
97 views

What is the value/price of a bond paying floating rate

I am going through J.C.Hull for swaps. Where he says we can value a swap using bonds. Let $B_{fl}$: value of floating rate bond, $L$ notional principal. Why is $B_{fl} = L$ just after a payment ? What ...
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51 views

Convertible bonds pricer - implementation

Where I can find numerical implementation (in any programming language) of convertible bonds pricer based on the following article: E. Ayache, P. A. Forsyth, K. R. Vetzal, "The Valuation of ...
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2answers
64 views

Calculating excess returns

I would like to know if I am calculating these excess returns correctly. I have here an R dataframe with weekly 3-month treasury bill rates, and the arithmetic ...
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1answer
172 views

Swap Curve and Forward Libor Rates

How does the (interest rate) swap curve incorporate forward libor expectations?
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1answer
131 views

Why do Treasury Futures settle at maturity with higher yield-to-maturity than the corresponding spot rate? [duplicate]

Absolute beginner on bonds, trying to understand why spot rates seen for US-T don't seem to line up with CME futures for ZT/ZB/etc at their maturity. For instance, ZB-U8 seemed to settle at 140-27 on ...
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0answers
31 views

Lottery calls on municipal bonds

I'm trying to independently price several municipal bonds with lottery calls. Based on market prices/yields I can tell that the price, ytw, etc. is not based upon the first viable call. What is the ...
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1answer
46 views

Bond and Stock Relationship

Is there any formulair relationship between the price of a corporate bond and the stock on the same company?
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0answers
31 views

Using above par zero coupon bond to build a zero coupon curve

Should I discard bonds above par (zero coupon bond with market price over par value) when I build a zero coupon curve? Most of the academic textbooks use bonds below par as inputs to build Zero ...
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1answer
92 views

How should we calculate the duration of a convertible bond?

For callable bonds we can use the effective duration to approximate the modified duration, since the future interest rates will affect the expected cash flows. For convertible bonds the underlying of ...
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3answers
134 views

YTM of “very-seasoned” bond issues

There is a liquidity premium between on-the-run treasury issues and off-the-run issues with similar characteristics. This is why when building a yield curve, typically on-the-run issues are used to ...
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57 views

Strategy in steepening curve environment, stable spreads - HotS interview problem

The following problem was found in "Heard on the Street": You construct a yield curve for (coupon-bearing) treasuries. A particular five-year corporate zero-coupon bond has a default risk ...
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1answer
61 views

Zero Coupon Curve and Floating Rates Notes pricing

Simple question: Can I use a Zero Coupon Curve (using Treasury or Swap Curve) to price floating rates notes (FRN)? I am building a classic Zero Coupon Curve, however I wonder if I can use it to ...
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1answer
42 views

how to change the value set by the addFixing method in QuantLib

Suppose we have had constructed an index for forecasting future interests of a floating bond, and as suggested by the official document, I used addFixing method to set a past fixing for the current ...
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21 views

Treasury auction cycle - short base

During an auction cycle, the most recent securities typically trade special (their rates are below general collateral rates). The securities are harder to borrow in the repo market and participants ...
2
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1answer
141 views

Why Arent There Long Rate Models?

You have short rate models, https://en.wikipedia.org/wiki/Short-rate_model, but there doesnt seem to be any long rate models. I find this weird as in options modelling you model the whole smile, not ...
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1answer
107 views

Hedging Ratios for Fixed Income Instruments

If you buy a corporate bond and you want to hedge the interest rate risk, how would you know how many interest rate futures/swaps to hedge the bond with? The same with an MBS security, if you want to ...
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20 views

Duration Calculation with Delayed Amortization

I am trying to calculate Duration for a bond with a 10 year maturity, but experiences 10% Amortization over the last 5 years. It also has a 5% coupon. I am interested in the answer, but more ...
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0answers
23 views

Pricing European Call on Coupon Bond in Lattice

What's the best approach to pricing a par call option on a coupon paying bond? Is it to discount the greater of the price and strike through the lattice? And for this, is the price used the dirty or ...
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2answers
119 views

How to calculate implied repo of a hypothetical bond that has not been issued?

I want to calculate the implied repo to a delivery date for a series of bonds that have not been issued yet. Do I make assumptions about the bond yields on some trade settlement date and the futures ...
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1answer
53 views

How to compare bonds in terms of volume traded in Bloomberg Excel Add-in?

I want to compare how much bonds of a handful of companies have been traded over the last years and pick the most traded bond for each company via the Excel add-in. One example of what I have tried ...
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1answer
135 views

For a fixed-fixed cross currency swap, can I use a curve with two floating legs to discount the cash flows?

I'm doing a USD to INR fixed-to-fixed cross currency swap. The default curve has a fixed and a floating rate. However, the curve that I'm looking to use has floating rates on both legs. Would this ...
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46 views

Pricing a preferred share

I am looking for references for models which price preferred shares. What are the classic pricing papers?
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1answer
90 views

What's the most accurate benchmark index for US corporate and treasury bonds

I'm looking for an index for US corporate bonds and US treasury bonds to benchmark my strategy. I could easily use some ETFs as the benchmark for the recent years but I need data for the time range <...
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1answer
66 views

Credit Spreads and Relative Value : floating vs fixed bond

I would like to study if, in these weeks during the italian credit crisis, floating govy bonds were more resilient than fixed govy bonds. For each floating issue (CCTS) I chose the fixed issue with ...
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0answers
54 views

A basic question about short-rate models

Sorry, if it's a very rudimentary question. I mainly practice tax but have to deal with financial transactions from time to time where I have to benchmark option prices. I have usually used Hull's ...
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1answer
57 views

Repo advantage relative value (Treasury) [duplicate]

If a Treasury issue is trading special (100bp repo advantage vs GC in overnight repo), and it's worth -10bp in carry (assuming duration is 10) and the error to the Treasury spline is -5bp, would this ...
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2answers
41 views

Australian Treasury Bonds - Price Calculation with Accrual

In this document ASX Interest Rate Derivatives (on page 7) the Australian Commonwealth Treasury Bond (paying semi-anually) is valued as $$ P = v^{f/d} \cdot \left(\frac{c}{2} + \frac{c}{2}\cdot\sum_{...
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2answers
108 views

Relationship between BBB credit spreads and rising interest rates

A stylized fact in markets seems to be that there is a negative correlation between interest rates and corporate spreads - as interest rates rise, spreads tend to tighten and vice versa. I'm ...
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15 views

How to compute historical bond drawdowns from yields

I came across a very interesting article which shows a picture with the drawdowns bondholders would have faced by investing in Fixed Income since 1919. However, the picture I get looks a bit ...
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0answers
84 views

Bloomberg OAS model

What interest rate stochastic model does bloomberg use to construct the interest rate trees for the calculation of bond OAS. If the model used is lognormal, then how is the volatility calibrated for ...
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3answers
135 views

What are the impacts of the discontinuation of benchmark Interest Rates?

I was wondering what the impacts of Interest Rates benchmarks (LIBOR/EURIBOR) discontinuation might be on the Quants side ? Do you know if there are articles/discussions providing an analysis grid of ...
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0answers
43 views

Extension of HJM to multiple factors

The HJM model calibrates the entire forward curve using the existing yield curve data and this results in the following expression for its instantaneous forward rate- $$df(t,T)=\sigma(t,T)\int_0^T\...
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1answer
137 views

How to compute bond drawdowns?

I came across a very interesting article which shows a picture with the drawdowns bondholders would have faced by investing in Fixed Income since 1919. The data is based on the Moody's seasoned AAA ...
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1answer
105 views

Calculating PnL on Swap Spread Trade

Say I am a long a 10Y US govt. bond and short (i.e., pay fixed) a 10Y US IRS. The swap spread moves, for example, from -0.25 to -0.3. What do I need to calculate P&L (approximately)? Are such ...
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1answer
50 views

Fallback Interest rate volatility for OAS model

The Bond OAS computation model used in our bank (The model was created in the 90s and the people who worked on it then are no longer part of the company) uses a fallback interest rate volatility of 27....