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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 include inflation linked bonds, variable-interest rate notes, and the like.

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What is the trickiest thing to get right in Rates Quant recently (2019)?

What are the biggest challenges for Rates Quants in 2019? Most quants have been through a lot over the past years-shifting their SABR models in JPY swaptions, fixing the FVA models for negative rates, ...
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Predicting bond auction result. Should I train separate models for different maturity in face of Data deficiency?

Problem Statement Trying to predict how bond auction result ( in terms of yield ) is different from its forecast (the when-issued yield ). More info:http://www.mortgagenewsdaily.com/mortgage_rates/...
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403 views

Callable bond price sensitivity to Hull-White volatility changes

I'm using classic Hull-White model for short term interest rate dynamic: $$dr(t)=[\theta(t)-\alpha(t)r(t)]dt+\sigma(t)dW(t)$$ (Notation is quite intuitive, anyway I am using the same as Wikipedia ...
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299 views

How are quants able to verify whether their calculated prices are any good

This question is related to the discussion on Model Validation Criteria However it appeard to be very high level to me and I would like to go more into detail. Not working at a pricing desk the ...
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400 views

is there a mapping from Altman Z-score for private companies to bond ratings or probability of default?

On wikipedia, there is a formula to calculate the Altman Z-score for private companies: Z-score estimated for private firms: T1 = (Current Assets − Current Liabilities) / Total Assets T2 = Retained ...
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47 views

What are the trade offs when choosing a long term bond future to trade?

It seems that when trading long term bonds *** and choosing between the two offerings on CME one is presented with a Scylla and Charybdis decision. 1. VOLATILITY CONSISTENCY: Ultra U.S. Treasury Bond ...
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104 views

Pricing Options on Fixed Income ETFs

The market for trading options on fixed income ETFs like HYG has become increasingly prominent in the past couple years, but I've been unable to find any discussion related to the pricing methodology ...
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1k views

Jamshidian's trick for Swaptions

Following Brigo$^1$ p.77, we can decompose the price of a swaption as a sum of Zero-Coupon bond options (Jamshidian's Trick). To do so, the authors suggest to find $r^*$ the value of the spot rate at ...
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410 views

How to price Swaptions with short rate models?

I have specified a (Lognormal) short-rate model (non-affine) under the Risk-Neutral measure $Q$ as a shifted exponential vasicek: $ r(t) = e^{y(t)} + \phi(t)\\ \text{with} \quad dy(t) = \kappa(\...
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256 views

RQuantLib: any difference between FixedRateBond() and FixedRateBondPriceByYield() with flat term structure?

Please, consider the following functions from RQuantLib package: FixedRateBond() ...
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66 views

How is the integral relationship between current yield curve and forward yield curve derived?

$$y(\tau) = \frac{1}{\tau} \int_{0}^{\tau} du \Big(f(u)\Big)$$ As far as I understand the forward rate is the future rate based on the expectation hypothesis. But it is unclear how many years into the ...
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124 views

Correct form for State Space Equation for Kalman Filter for DNS

In this paper: http://www.ssc.upenn.edu/~fdiebold/papers/paper55/DRAfinal.pdf in eqns 3,5 the state eqn has the mean removed. $(z_t-\mu)=A(z_{t-1}-\mu) + \epsilon_t$ $y_t=C z_t + \delta_t$ ...
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115 views

Fed Funds Rate: longer maturities

FFR published by Fed Bank of NY is the average rate US banks charge each other for the overnight loans of their reserves required by the Fed regulations. Since Fed acts similar to a clearing house ...
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453 views

Calculating Net Annualized Return on LendingClub historical data

I am interested in the formula LendingClub provides as their measure of "Net Annualized Return": $\big(1 + \frac{\sum_{i=1}^N{((I_i + L_i - S_i - C_i + R_i) / P_i) P_i}}{\sum_{i=1}^N{P_i}}\big)^{12}-...
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133 views

Pre- Versus post-2008 Crisis Rates Modeling

Modeling for interest rate derivatives (such as bermudan swaptions) is said to have undergone significant changes since the crisis. Prior to the crisis, counterparty default risk was often ignored, ...
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928 views

Yield Curve Volatility

Let you have several issuers, and let each issuer have its yield curve built up with liquid plain vanilla fixed rate bonds. Each yield curve has its slope and its curvature, and they obviously change ...
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Fixed Income portfolio type

Could someone kindly point me toward a primer that would cover the various type of fixed income portfolio strategies under modern portfolio theory ? In a nutshell, I would like to know what kind of ...
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61 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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21 views

Importing a zero coupon curve to RQuantLib

I am trying to use a zero coupon curve constructed elsewhere to price treasury bonds in RQuantLib. The issue is that DiscountCurve does not take zero coupon yields as inputs, but rather swap rates. I ...
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73 views

How should I interpret a forward rate?

Let $L(t, S, T)$ denote the forward rate from time S to T observed at time t, assuming t < S < T. A lot of modelling work is centered around this rate, but how is this rate useful? How are we ...
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236 views

Modified duration and convexity of a bond in R

A soft question: Are there any existing packages in R that allows one to compute the modified duration and convexity of bonds in R? If there isn't, how can one go about doing so (with formulas) with ...
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73 views

How do traders determine when points in a yield curve are at 'fair value'?

While on my last day on an internship last summer, I heard on the morning call a UK rates trader say something along the lines of: "Most of the curve is at fair value at the moment, so nothing ...
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2k views

Pricing a fixed rate bond in Quantlib Python

I'm trying to implement a pricing model for fixed rate bonds with the code below. ...
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70 views

Using Market Prices of Bonds to Model the Discount Curve with a Polynomial (Math + R)

I have a small program I'm building to interpolate the discount curve from a portfolio of benchmark bonds. If anyone has any guesses as to whether it's my process, or my code that's messed up I would ...
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43 views

Expectation of expression with two currencies under forward measure

I'm trying to calculate the expected value, at time $0$, of a cashflow paid at time $T$, resetting at time $t$. The coupon is of the form: $V_0=\mathbb{E}^{T_2}\left[\frac{A_t^y(T_1,T_2)}{B_t^x(T_1,...
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50 views

Equity protection and butterfly certificates pricing

Certificates issued by famous industry names are usually made up by a combination of a fixed income instrument and some vanilla and exotic options. I am looking for something which explains: how to ...
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113 views

Problem with Naive Bootstrapping (US Government Bonds)

I am using the formula here to determine the discount factor function and eventually the zero-coupon yields. I get the data for Coupons, Face Values and Closing Prices from Thomson Reuters, which I ...
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536 views

Modified duration in multi-currency portfolio

I was thinking about how to figure aut duration for portfolio of bonds denominated in different currencies… I would like to compare sensitivity of portfolio to shift of yield with competitive ...
2
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0answers
138 views

Is there such a thing as “sell-off risk” in bond funds?

Popular yet generally academically-grounded commentators such as Annette Thau and Larry Swedroe have claimed that there is the possibility for "sell-off risk" in bond funds. By this they apparently ...
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209 views

Looking for FpML best practices

We want start using FpML within our organisation; where message will be sent using FpML. What are best practices to do this ? If anyone who have used Tools as well as; i want to use FpML for ...
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How to calculate the fair value of a futures roll and what are the practical uses?

Last month, I spent some time calculating the fair value of a futures contract in preparation for the current futures roll period. I've backtested it and noticed that fair roll generally gives me an ...
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43 views

Creating yield curve from exchange-listed products only?

For use in subset of my thesis, I’ve been given some exchange market data for several exchange-listed products, including Eurodollar rate futures as well US treasury futures and Fed Funds futures. I ...
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57 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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56 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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64 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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36 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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35 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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60 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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45 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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75 views

Factor Model - Fixed Incom

I am reading Bloomberg's fixed income fundamental factor model doc. And they define their curve factor (motivation for this factor: most fixed income securities' prices are largely impacted by the ...
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0answers
87 views

Relative order of curve for coupons for Upward Sloping Yield

Why would the forward curve be above zero and coupon bond yield be at the bottom for a sloping up yield curve.
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48 views

How do you calculate or estimate the future gross basis of a treasury future?

Gross Basis for treasury futures = clean price - future price* conversion factor Is there a way to estimate the gross basis, say 10 days from now, given that you know what the forward bond price is? ...
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100 views

Fixed Income Trading Intuition

Is there any literature discussing the economics of trading fixed income securities? I was asked in an interview the other day how I would trade/construct a bond portfolio if a) the fed raised rates ...
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0answers
179 views

Calculating price -> yield and yield -> price for fixed rate bonds using QLNet

I'm trying to implement a simple calculation module to calculate fixed rate bond yield given the price (and then price based on yield to verify the calculation). I've looked at a number of examples (...
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0answers
97 views

Pricing a structured note instrument

I am trying to work out the following fixed income problem, where I am asked to price a structured note in Excel, which seems to me to be a reverse collar. My purpose was replicating this structured ...
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49 views

Adjust a bond for PIK option

Is there any literature that discusses adjusting a bond for various PIK (Pay-in-Kind) options? I'm trying to benchmark a loan with a PIK option with non-PIK bonds. Edit: The loan has a payment in ...
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190 views

Negative correlation between interest rates and credit spreads - Why?

In fixed income markets a stylized fact seems to be that there is a negative correlation between interest rates and credit spreads: Spreads tend to widen as rates fall. Why is that?
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91 views

How to compare the value of bank Certificates of Deposit (CDs) with brokered CDs?

I am interested in comparing the value of bank Certificates of Deposit (CDs) with brokered CDs, to determine whether one is undervalued relative to the other. A brokered CD is basically a vanilla bond ...
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386 views

Riding the Yield Curve

Can someone explain how/why bond prices have not changed at t=1. I would expect that even though the curve is not changing, the price at t=1 would not be same at it was at t=0? Shouldn’t new prices ...