Bond Markets • T bill price
• T note and T bond price Invoice Price = Flat Price + Accrued Interest • Repo interest Interest = loan amount × repo rate × 1/360 • Repo gain/loss capital gain/loss on entire bond + carry Bond Valuation • Annual effective rate AER = (1 + APR/m)m – 1 • Continuous compounding m → ∞ ⇒ AER → eAPR – 1 • General bond pricing formula
• General bond pricing formula with ann. APR
• Zero coupon bond price and yield
• Perpetuity price and yield
• Annuity price
• Coupon bond price
Term Structure of Interest Rates • Brandt’s preferred yield model
• Brandt’s preferred discount function model Forward rates implied by spot rates
• Spot rates implied by forward rates
Price Sensitity and Hedging • Dollar value of a basis point
• Duration
• Macaulay duration of zero coupon bond
• Macaulay duration of coupon bond
• 1st-order approximation of bond price change
• 1st-order approximation of DV01
• Convexity
• Convexity of zero-coupon bond
• Convexity of coupon bond
• 1st-order approximation of duration change
• 2nd-order approximation of bond price change
• Duration of portfolio
• Duration neutral portfolio
• Volatility weighted duration neutral portfolio
• Regression-based duration neutral portfolio