New answers tagged

0 votes

Treasury futures wild card option (Monte carlo simulation)

I’d say you have the right ideas, and I’ll make a few comments: A) yields have been very volatile for the last couple months, and might be expected to be volatile for the next few cycles also. ...
user avatar
  • 13.7k
2 votes

Returns of an interest rate swap

I think the best concept of return for the interest rate swap is (2-0)/m, where m is the outlay for initial margin. This is rarely calculated at an institution holding a large portfolio of swaps, ...
user avatar
  • 13.7k
0 votes

Returns of an interest rate swap

Let us specify the floating-leg rate reset dates to be $T_\alpha, T_{\alpha+1}, \ldots, T_{\beta-1}$, payment dates $T_{\alpha+1}, \ldots, T_{\beta}$. Set the day count fraction to $\tau_i \equiv T_{i+...
user avatar
  • 337
1 vote
Accepted

Bond value as a function of spread change and duration/maturity

You should be able to re-use the rate duration as a measure of spread sensitivity as well: Let's assume a simple vanilla fixed-coupon-bearing bond w/o embedded optionalities that pays at coupon rate $...
user avatar
  • 5,388
0 votes

Model-Free Implied Volatility: Data of Expired Options and Bond Price

With BBG, you can use OPT_CHAIN (on FLDS - hence Excel) using SINGLE_DATE_OVERRIDE with a date in the past in YYYYMMDD format to get tickers back until 2012. 2000 is generally possible, but not ...
user avatar
  • 4,258
0 votes
Accepted

Simple (?) question about expected bond returns

I'll mark this closed shortly, the comments from nbbo2 and fesman were both very helpful (and thanks also to Dimitri V). If anyone else finds this topic interesting, I subsequently found a paper that ...
user avatar
  • 11
0 votes

How can I optimize a Bond Portfolio in Practice?

You can use a mean variance optimizer such as Portfolio Visualizer to include different bond assets with various durations and yields, and backtest the historical returns based upon risk tolerance and ...
user avatar
0 votes

How to calculate the yield of a perpetual bond that pays a floating coupon payment?

Let's stick with first principles and assume a single-curve world. Assume a discount factor curve $D_i\equiv D(t_i), t\geq 0, D(0)=1$. The risk-neutral expected forward rate from $t_i$ to $t_{i+1}=t_i+...
user avatar
  • 5,388
0 votes

How to calculate the yield of a perpetual bond that pays a floating coupon payment?

Projecting what the the market thinks the 3Mo LIBOR will be in 50 years is a little iffy. USD and EUR swap curves are liquid to 30 years. People mark swap rates up to 50 years but they don't print ...
user avatar
0 votes
Accepted

How to break down yield to maturity to different components?

I think I understand. You are trying to calculate the IRR of the a-cash flows and the b-cash flows individually ? But there are multiple solutions: you can partition the PV into PV(a) and PV(b) and ...
user avatar
  • 13.7k
3 votes
Accepted

Interest rate risk of a bond as a function of the coupon

Yes, the point made in the question is true; more fixed coupons all else equal leads to more interest rate risk. More precisely: more fixed coupons trivially (but well spotted) gives you more losses ...
user avatar
  • 1,267
4 votes

Interest rate risk of a bond as a function of the coupon

Since duration is the primary risk of a bond, higher coupons tend to decrease the duration, and the risk of the bond.
user avatar
  • 5,030

Top 50 recent answers are included