1 / 14

Chapter 5

Chapter 5. Bond Management. A. The term structure of interest rates ---Term to Maturity vs. YTM. (A) The expectation theory, Fisher 1896 If  Arbitrage buy long-term bond yield  P    If  Arbitrage sell long-term bond yield  P   .

raquel
Télécharger la présentation

Chapter 5

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 5 Bond Management

  2. A. The term structure of interest rates---Term to Maturity vs. YTM • (A) The expectation theory, Fisher 1896 If  Arbitrage buy long-term bond yield  P If  Arbitrage sell long-term bond yield  P

  3. (B) The Liquidity Preference Theory,Hicks 1946 YTM Yield with liquidity premium Yield without liquidity premium N

  4. (C) Market Segmentation Theory, Gulberson 1957

  5. (D) CIR Theory, 1979 Cox, Ingersoll and Ross

  6. B. Fixed-Income Portfolio Management 1. Duration the weighted average of the times to each coupon or principal payment made by the bond

  7. B. Fixed-Income Portfolio Management (1) Macaulay's Duration, 1938 Macaulay (MD) MD=1{[C1/(1+Y)]/P0}+2{[C2/(1+Y)2]/P0} +...+T{[(CT+F)/(1+Y)]/P0} = {[tCT/(1+Y)]+[FT/(1+Y)]}/P0

  8. B. Fixed-Income Portfolio Management (2)Duration vs. Interest rate sensitivity MD= ―(ΔP/P)/[ΔYTM/(1+YTM)]

  9. B. Fixed-Income Portfolio Management (3) Bond Rules a. The duration of a zero-coupon bond equals its time to maturity < Proof >: MD = / P0 = T(P0/ P0) =T

  10. B. Fixed-Income Portfolio Management b. Holding time to maturity and YTM constant, a bond's duration and interest rate sensitivity are higher when the coupon rate is lower i.e. MD/i<0

  11. B. Fixed-Income Portfolio Management c. Holding the coupon rate constant, a bond's duration and interest rate sensitivity generally increase with its time to maturity i.e. MD/t >0

  12. e. The duration of a level perpetuity is (1+YTM)/YTM B. Fixed-Income Portfolio Management d. Holding other factors constant,the duration and interest rate sensitivity of a coupon bond are higher when the bond's yield to maturity is lower  i.e. MD/YTM < 0

  13. B. Fixed-Income Portfolio Management 2. Immunization: strategies used by investors to shield their overall financial status from exposure to interest rate fluctuations  Rebalancing portfolio As interest rates and asset durations change, a manager must rebalance the portfolio of fixed income assets continually to realign its duration with the duration of the obligation

  14. B. Fixed-Income Portfolio Management Single bond, Single payment [Immunization rule] MD of the bond = MD of the liability Bond portfolio, Single payment [Immunization rule] Weighted Average MD of the bond portfolio = MD of the liability

More Related