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24 votes
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Formula for forward price of bond

Amazingly, there are several different methods for computing bond forward price – the underlying ideas are the same (forward price = spot price - carry), but the computational details differ a bit ...
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17 votes
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What are some of the best textbooks on Fixed Income securities?

If I were to recommend one, it would be: Bruce Tuckman's Fixed Income Securities. This is by far my absolute favorite. It is extremely well written and discusses complex concepts in very easy-to-...
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16 votes

Pricing Treasury futures

Treasury futures are actually really complicated... There are complete books dedicated to this topic (e.g., The Treasury Bond Basis) and really good sell-side research papers ("Understanding Treasury ...
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12 votes
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Pricing a FixedRateBond in Quantlib: yield vs TermStructure

Day-count conventions. You can't live with them, you can't live without them. The reason the prices differ is that the pricing engine can't calculate correctly the time over which the first coupon is ...
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11 votes
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Simple QuantLib Bond Math

To begin with, as Student T suggested, you can check that the cashflows are those you expect: ...
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10 votes
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Why can CDS indices be used as a bond market index?

It is helpful to think of the yield $r_b$ of a risky bond (say a corporate) in your country as the yield of the risk-free government bond $r_f$ plus a "spread" $r_s$ ($r_b = r_f + r_s$). This extra ...
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10 votes
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Callable bonds with very short call period. Purpose?

It's because of a bank regulation called the Liquidity Coverage Ratio. This says that if you have liabilities of less than 30 days, you have to hold liquid assets against it. To avoid that , you ...
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9 votes
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Calculating instantaneous forward rate from zero-coupon yield curve

Your overall approach is correct. However to my knowledge it is formally more appealing to work with a parameterized and smoothed yield curve. Basically one assumes that the yield curve can be ...
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9 votes
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Do we use the Nelson-Siegel model to calculate the yield curve?

In the beginning, we had a plot of yields of individual bonds against time to maturity, the crudest form of "yield curve." Years later, people began hand-drawing a smoothed line through these yields ...
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8 votes
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Do price approximations lead to arbitrage opportunities?

No. The dirty price is the market's estimate of fair value for the bond. The clean price is just a quoting convention (so that the price doesn't jump when you pass over a coupon date). The market ...
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7 votes
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How can I interpret US treasury?

1) 52-week T-bills are currently auctioned on a monthly basis. Bloomberg always shows the most recently auctioned T-bills for each tenor. For example, right now, the "12-month" T-bill was actually ...
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7 votes
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What happens to accrued interest and coupon payment if coupon date is weekend?

For the vast majority of bonds, as other commenters have pointed out, coupon sizes are generally not affected by bad days (i.e., holidays and weekends), so for a bond with semi-annual coupon payments, ...
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7 votes
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reason behind bond yield diverge for bonds with the same maturity during 2008 crisis

Just to elaborate on the comments above to include some visuals. As you pointed out, the high coupon, seasoned 10.625s traded at a steep discount. The first chart below shows the yield spread against ...
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6 votes

Use of Girsanov's theorem in bond pricing

Bond Price Dynamics I do not know the source of the bond dynamics you show above but seeing how we are dealing with an affine model there is a very elegant way to derive those. Due to the model ...
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6 votes
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How to calculate US treasury total return from yield?

Let's start with a single bond. The total return from time $t_0$ to time $t_1$ can be easily calculated as follows: $$ R = \frac{\text{ending price} + \text{ending accrued interest} + \text{coupon ...
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6 votes
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question regarding carry & roll of a bond

The formula you quote (forward minus spot) is the yield carry for a financed position. The problem is that different people use the word carry to mean different things. The most commonly used ...
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6 votes

question regarding carry & roll of a bond

Carry and roll-down are two different measures. The carry is the PNL resulting from holding a position. However, even if you don't finance the bond in repo, you can still measure your carry as the ...
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6 votes
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Pricing foreign currency bonds - which approach is more theoretically "sound"?

In #2, you can use FX forwards to convert your JPY cashflows to USD but it is more common in practice to use a cross-currency swap for this purpose. Indeed, the advantage of the latter is that it ...
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6 votes
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BUS/252 accrual - why 252?

Business days are all weekdays excluding holidays under the respective settlement calendar. The "252 business days per year" rule of thumb is quite common not only in Brazil - see e.g. here. The ...
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6 votes

How to calculate the daily carry on a bond future?

There are three sources of carry for bond futures - Carry on the underlying (coupon accrual and yield roll-down) for which you just compute the carry on the cheapest-to-deliver as you suggest. ...
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6 votes
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Custom Bond Index Construction

As @noob2 pointed out, a Laspeyeres type index is the way to go, so I'll focus on other parts of your question. Nearly all bond indices are rule-based and rebalanced monthly. At the end of each month,...
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6 votes
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A very simple question about convexity of a bond

The chart you posted does not give a correct visual representaion of convexity . Convexity is not $\frac{\partial^2 P}{\partial y^2}$ but $\frac{1}{P}\frac{\partial^2 P}{\partial y^2}$. So you have to ...
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6 votes
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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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6 votes
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Why does the YTM equal the coupon rate at par?

Let $P$ denote the dirty price, $F$ the face value and $i$ the YTM. Using the geometric sum we get \begin{align} P &= \sum_{j=1}^n \frac{C}{{(1+i)}^j} + \frac{F}{(1+i)^n}\\ &= C\frac{1-\...
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6 votes
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If I have the present value of an amortizing bond's cashflows, how do I figure out price?

The price of most (not all) bonds is quoted as a percentage of face value (par). For most amortizing bonds that have already amortized, the percentage is of the face value now, after amortizations, ...
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6 votes
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Construct a zero coupon bond

(Assuming that the two coupon bonds have exactly the same schedules, and that you're settling when the accrueds are 0.) Consider a portfolio consisting of \$7 long 3% bond and $3 short 7% bond. This ...
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5 votes

Why is the duration of a bond important?

It is useful in risk reports because it tells a trader the interest rate risk of each bond in his portfolio. A trader then only needs to multiply the duration by the expected yield change to calculate ...
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5 votes

Can the duration of a bond be greater than Time to Maturity

Like Aksakal already mentioned in his comment it might depend on the duration formula you use. (see e.g. the wikipedia page or here) It can also depend on the type of instrument as mentioned by ...
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  • 3,337
5 votes

What happens when bond price is less than the recovery rate

To add to emcor's answer, if a bond defaults, you do not automatically get the "recovery" amount immediately, you get some unknown amount at some unknown time in the future, possibly years later, and ...
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