additional risks in fixed income markets

... 171 Arbitrage Pricing of Derivatives 174 Risk-Neutral Pricing 177 Arbitrage Pricing in a Multi-Period Setting 179 Example: Pricing a CMT Swap 185 Reducing the Time Step 187 Fixed Income versus Equity ... earns only 47/8% in interest An investor buying this bond will accept this below-market rate of interest only in exchange for a principal payment greater than the initial investment In other words, ... rate of interest, an investor will not require a principal payment greater than the initial investment and will not accept any principal payment less than the initial investment The bond being priced,...

Ngày tải lên: 14/08/2014, 05:20

... maturities, minimizing price errors is not so useful as minimizing yield errors Minimizing (4.23) in this example produces a RMSE of 1.2 basis points; more detailed results are given in the next ... or less), investors commit to a fixed term and interest is paid at the end of that term Since there is no interest on interest in the sense of reinvestment over the life of the original security, ... construct a yield curve by connecting these few data points with straight lines, as illustrated in Figure 4.1 This linear interpolaTABLE 4.2 Bonds Selected for Linear Yield Interpolation Coupon Maturity...

Ngày tải lên: 14/08/2014, 05:20

... expended in the original trade and for hedging the option over its life Some of the work involved in hedging after the initial trade will become clear in the sections continuing this hedging example ... most other fixed income securities rise in price when rates decline The quantity ∆P/∆y is simply the slope of the line connecting the two points used to measure that change.3 Continuing with the ... change in any spot rate is the linearly interpolated change in the two-year and 10-year spot rates In that case, knowing the change in the two-year spot rate alone, or knowing the change in the...

Ngày tải lên: 14/08/2014, 05:20

... changes in the 20- and 30-year yields is √.9825=.9912 157 One-Variable Regression-Based Hedging Some additional insight into regression hedging can be gained by focusing on the following fact ... cheapening of 43 basis points When examining indexes of value it is often a good idea to determine whether a risk factor has been omitted In other words, is there 163 TRADING CASE STUDY: The Pricing ... point change in the curve with a fixed 10-year yield In short, the regression-based hedge can be thought of as hedging against changes in 10- and 30-year yields or as hedging against changes in...

Ngày tải lên: 14/08/2014, 05:20

... obtained in equation (10.9) by assuming that investors are risk-neutral Second, the increase in the discounting rates has increased the expected return of the two-year zero In one year, if the interest ... consider again the second interest rate tree presented in the preceding section, with a volatility of 400 basis point per year Risk-neutral investors would price a two-year zero by the following calculation: ... adding, for example, 20 basis points to each of these rates is equivalent to assuming that investors demand an extra 20 basis points for each year of modified duration risk Assuming this is indeed...

Ngày tải lên: 14/08/2014, 05:20

... 10-year rate is four basis points rich In this case the V2 model will be misleading It concludes that there is nothing to be gained by paying in the 10-year and receiving in the twoyear, while that ... with an OAS of –8.6 basis points, and receiving in nine-year swaps with an OAS of –1.6 basis points Since the model predicts that long positions in these rich hedging securities will lose money, ... 103.8%, meaning that paying on 100 face of the five-year and receiving on the hedging portfolio results in an excess DV01 of 3.8% of 4.2853 or 16 cents This finding might be interpreted as showing that...

Ngày tải lên: 14/08/2014, 05:20

... extra collateral in declining markets and allowing the borrower of cash to withdraw collateral See Stigum (1989) Repurchase Agreements and Financing Long Positions 305 in advancing markets For simplicity, ... futures contracts, an understanding of forward contracts is essential in fixed income markets First, the common practice of combining a spot position with borrowing or lending creates the economic equivalent ... points below the GC rate, in order to cover or initiate a short sale (No investor without a particular interest in the OTR five-year would take it as collateral and earn 3.85% instead of taking...

Ngày tải lên: 14/08/2014, 05:20

... –7.6 basis points In other 10 Succinctly, all swaps finance at LIBOR Including the fictional notional amounts, receiving fixed and paying floating is analogous to buying a bond and financing it at LIBOR ... of risk used in the swap markets is PV01, normally meant to mean the change in the value of a swap for a one-basis point change in its fixed rate Writing a bond pricing equation in terms of discount ... to hedge against rates falling in December and subsequent months In light of the stacking and maintenance difficulties of hedging with Eurodollar futures, the trader might consider buying December...

Ngày tải lên: 14/08/2014, 05:20

... QUOTING PRICES WITH VOLATILITY MEASURES IN FIXED INCOME OPTIONS MARKETS Market participants often use yield-to-maturity to quote bond prices because interest rates are in many ways more intuitive ... switching bond holdings This attention tends to dominate trading of bonds in the deliverable basket As a result, any time a bond begins to cheapen all the shorts express an interest in switching ... Quoting Prices with Volatility Measures in Fixed Income Options Markets 419 ∆Pfwd y fwd ∆Pfwd ∆y fwd y fwd ∆y fwd = ≈ 10, 000 × DV 01 fwd Pfwd Pfwd ∆y fwd y fwd Pfwd y fwd (19.20) Letting σp...

Ngày tải lên: 14/08/2014, 05:20

... refinancing In both cases the existing mortgage payments are canceled Then, in the case of a cash prepayment, the homeowner pays the principal outstanding in cash In the case of a pure refinancing, ... instructive shortcut Discounting using the mortgage rate at origination, the present value of the remaining payments equals the principal outstanding This is a fair pricing condition under the assumption ... fallen In that case, as discussed in the previous section, the value of an existing mortgage exceeds the principal outstanding Therefore, the borrower gains in a present value sense from paying...

Ngày tải lên: 14/08/2014, 05:20

... voting over income distributions as in Grandmont [8] Conditions (2) and (3) insure that every tax is increasing with the revenues in such a way that it does not change the post-tax income ranking ... (concave) In the following, we present examples of restricted policy spaces U of income tax functions, which, as underlined in the introduction, were used in the literature of the positive theory of income ... be investigated Moreover, an interesting line of research is toward discrete income distribution functions (see also Moreno-Ternero [22]) Looking at the implications of the least core in fixed-income...

Ngày tải lên: 18/06/2014, 15:20

... voting over income distributions as in Grandmont [8] Conditions (2) and (3) insure that every tax is increasing with the revenues in such a way that it does not change the post-tax income ranking ... (concave) In the following, we present examples of restricted policy spaces U of income tax functions, which, as underlined in the introduction, were used in the literature of the positive theory of income ... be investigated Moreover, an interesting line of research is toward discrete income distribution functions (see also Moreno-Ternero [22]) Looking at the implications of the least core in fixed-income...

Ngày tải lên: 20/06/2014, 23:20

... http://www.bcb.gov.br/?english Forecasting Bond Yields in the Brazilian Fixed Income Market ∗ Jose Vicente† Benjamin M Tabak ‡ The Working Papers should not be reported as representing the views of the Banco ... GDP in Latin American bond markets In the Brazilian fixed -income market domestic federal public debt is the main asset, with approximately R$ trillion (US$ 545 billions) in June 2006 In a recent ... na internet, no formato PDF, no endereço: http://www.bc.gov.br Working Paper Series Working Papers in PDF format can be downloaded from: http://www.bc.gov.br Implementing Inflation Targeting in...

Ngày tải lên: 29/03/2014, 06:21

... CHF 239 million, no additional restructuring cash costs are foreseen at this stage 4) excluding CHF 16 million of restructuring costs in Europe (mainly Spain) Fixed- income investor update May ... market financing (r.h scale) Fixed- income investor update May 2014 © 2014 Holcim Ltd 18 Access to a wide range of capital markets – only CHF 0.9 bn of capital markets instruments maturing until ... The percentage change like-for-like adjusted for internal trading volumes eliminated in “Corporate/Eliminations” amounts to +2.9 Fixed- income investor update May 2014 © 2014 Holcim Ltd Aggregates...

Ngày tải lên: 28/07/2014, 20:21

... Fixed income timing benchmark (Bps.) Fixed income timing excess (Bps.) -50 Basis points Basis points 2.0 Fixed income timing (Bps.) 50 1.5 Fixed income timing excess (Bps.) 1.0 Fixed income timing ... methods to fixed income attribution However, in doing this the performance analyst ignores essential characteristics of fixed income investments In many points, risk factors in fixed income investments ... methods to fixed income attribution However, in doing this the performance analyst ignores essential characteristics of fixed income investments In many points, risk factors in fixed income investments...

Ngày tải lên: 16/04/2013, 07:52

... of drinking water source The daily dosage of the drinking water is assumed to be L for all individuals in Fukushima city According to statistical analysis of river discharge at the intake point ... almost all individuals was infected by rotavirus Figure 5(b) shows the annual infectious risk in reclaiming the disinfected secondary effluent In this case, the infectious risk did not increase ... drastically increased corresponding to the increase of DALY lost by infection Figure 9(b) shows DALYs lost by cancer and infection in reclaiming the disinfected secondary effluent In this case,...

Ngày tải lên: 05/09/2013, 09:08

... differences in emission per capita kept declining in last 40 years The SD indicator declines from 0.9489 in 1960 to 0.4370 in 2004, and the Theil indicator declines from 0.3491 in 1960 to 0.0629 in 2004 ... Theil indicators of different country groups from 1970 to 2005 From Figure 6, the standard deviations and the Theil indicators of high income OECD, high income Non-OECD, upper middle income, low income ... high income Non-OECD countries (and regions), 31 upper middle income countries (and regions), 35 lower middle income countries (and regions) and 23 low income countries (and regions) The income...

Ngày tải lên: 05/09/2013, 16:10

... Chemical Engineering from Gunma University, Japan in 2004 in the field of fluidization engineering He is interested in research focusing on particle technology, specifically fluidization engineering ... treating E-mail address: eabdelghani@yahoo.com; dr.eng.emad@gmail.com Yehia H Magdy Prof in chemical engineering in El-Minia University –Egypt, 2012, in the present working in chemical Engineering ... fluidization engineering of ultrafine and superfine The circulating systems including submicron (superfine and ultrafine) powders are fluidized in a new circulating fluidized bed with coarse particles...

Ngày tải lên: 05/09/2013, 16:11

Ngày tải lên: 13/12/2013, 05:15

... thoroughly investigating the problem domain With an understanding of the privacy risk environment in information networks, we have a good starting-point for recognising, mitigating or preventing intrusions ... marketing (something for which user information is needed) In addition, in an increasingly networked environment, where new technologies and infrastructures are being rapidly introduced into the ... a good starting-point for recognising and preventing intrusions into matters of a personal nature In reflect, mitigating privacy risks contributes to a secure and efficient use of information...

Ngày tải lên: 16/01/2014, 16:33