New answers tagged

1

Interesting choice, for a school project. If you want to get an idea for how much these things usually don't but sometimes can and do move around, have a look at LQD or HYG/JNK, these being respectively the "investment grade" (ie duller) and "high yield" (ie riskier) universes. The "yield" you're seeing is what you would get as ...


0

"how much the interest rates fluctuate in a month?" If you mean the yields (i.e. Treasury rate + credit spread) or just Treasury rates then you can download some corporate bond index data here: https://fred.stlouisfed.org/searchresults/?st=OAS.


1

Can I sell them after one month? Probably - it depends on what type of bond and how liquid (easy to sell) it is. If yes, will I still get the bond yield/12? Maybe - but more than likely you'll sell it for more or less than what you paid for it. You do get whatever interest accrues between the time you bought the bond and the time you sell it. The two main ...


0

Suppose, your home currency is USD, and you fancy a EUR-denominated corporate bond quoted 99-99.5. This is bid-offer clean price. You pay USD spot rate0 * (clean offer price0 + accrued0) * notional. You should assume that you borrow this money and pay interest on it. There's a risk that the bond issuer will default. If that doesn't happen, then in 1 month ...


0

There are a number of measures that you can look at to asses the relative value of two bonds of the same credit but different maturities and coupons (Treasuries). For one, you can discount each bond using libor or ois swap discount rates (ASW), which is basically a swap spread. You can run oas to the swap curve or to a treasury curve spline model. You can ...


0

Assuming that $\mu,\sigma$ are constants, and let $t \in (t_1,t_2)$ be the interval then you can express the SDE in integral form: $$ S_{t}-S_{t_1}=\int_{t_1}^{t}\ln(\mu) ds+\int_{t_1}^{t} \ln(\sigma)dZ_s,$$ for $Z$ being a Brownian motion. Rearranging and solving the integrals gives you: $$S_{t}=S_{t_1} + \ln(\mu)(t-t_1) + \ln(\sigma)(Z_{t}-Z_{t_1})$$ I don'...


1

I am a co-author of that paper. You may want to check out FinancePy which is a beta version of a finance library where I have implemented the code for calculating the discount margin. Here is an example Jupyter notebook that reproduces (almost exactly) a Bloomberg example. https://github.com/domokane/FinancePy/blob/master/notebooks/products/bonds/...


3

I ran some quick simulations and the differences don't seem particularly drastic: The black line above is the cumulative total return (inclusive of dividends) of IEF. The yellow line is the so-called "excess return" index for TY (aka ZN), which is the cumulative return of buying and holding TY contracts. To compute this index, I assume that you ...


0

You need to include the Roll Yield https://www.investopedia.com/terms/r/roll-yield.asp#:~:text=Roll%20yield%20is%20the%20return,premium%20to%20longer%2Ddated%20contracts. Future contracts are usually rolled 4 times a year. When you do the roll, there is a price difference between contracts, and you need to include that. CBOE has a "Pace of the Roll"...


0

In addition to adding the return for your invested cash you have to roll the futures every quarter buy selling the front month and buying the back month a few days before the delivery cycle starts. You'll need some different contract specific data to do that. That should get you pretty close.


1

IEF as an ETF will also have management costs. Also the duration of IEF is lower since it is holding a basket of 7-10 Yr US Treasuries vs a 10 Yr note future, which is a future on just the 10Yr Note (actually a 10Yr 6% Note). There may be some optionality, such as Cheapest-to-deliver, at play with the future. Also, you will incur roll risk and costs of the ...


1

All the floating coupons are daycounted. Note that it says Floating Basis: Actual/365. (This is the usual daycount convention for GBP and some other currencies, but for USD the usual daycount convention would rather be Actual/360.) The first period from October 20, 1999 to November 20, 1999 is odd, short, only 31 actual days. Year fraction 31/365 is 0....


0

I think you mean this: Another DM variant is this: Source: This document has numerical examples.


2

I think I might have found the solution to my own question. The Markov property as stated above has no direct relation with the recombination of the approximating lattice. However, if we consider the "traditional" meaning of Markovness, that is being memoryless, things become clearer. Consider a binomial tree, where the random variable $X$ can ...


1

This is not how most people calculate the yield of a floater. The way most people calculate the yield of a floater is: 1 for each remaining unset coupon, project the values of the index that will be used (such as 3Mo LIBOR, daily SOFR, SONIA, ESTR, etc - see Forecast 3m LIBOR USD. Budget purpose for example); and project the coupons. For example, if a ...


Top 50 recent answers are included