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Vladislav Pyatnitskiy edited this page Oct 28, 2023 · 13 revisions

Welcome to the Fixed-Income-Analysis wiki!

1. Bond Pricing

1.1 Original Bond Calculation

• My R script: https://github.com/vladislavpyatnitskiy/Fixed-Income-Analysis/blob/main/Bond%20Calculators/Simple%20Bond%20Calculator.R

1.2 Calculation via exponent

• My R script: https://github.com/vladislavpyatnitskiy/Fixed-Income-Analysis/blob/main/Bond%20Calculators/Exponential%20Bond%20Calculator.R

2. Bond Pricing Change Assessment

2.1 Duration

The measure identifying the period of bond's payback.

• My R script: https://github.com/vladislavpyatnitskiy/Fixed-Income-Analysis/blob/main/Bond%20Calculators/Duration%20Calculator.R

2.2 Modified Duration

The drawback of the modified duration is the assumption that bond's relationship between yield and price is linear what is possible when yield change is small. The method is not relevant and reliable when yield changes are huge.

• My R script: added in duration script above.

2.3 Convexity

More advanced and accurate method to evaluate bond's sensibility to price change. It assumes that a relationship between yield and price is inverse proportional.

• My R script: https://github.com/vladislavpyatnitskiy/Fixed-Income-Analysis/blob/main/Bond%20Calculators/Duration%20Calculator.R

3. Risk Management in Fixed Income Analysis

3.1 Value-at-Risk for Fixed Income instruments

Value-at-Risk is mostly calculated using returns of the asset. However, bonds have two parameters that might constantly change like price and rate. Classic VaR is applied for calculation using price value, whereas VaR for rate is calculated differently.

• My R script: https://github.com/vladislavpyatnitskiy/Fixed-Income-Analysis/blob/main/Bond%20Calculators/VaR%20via%20Duration.R

References

Hull, J.C. (2012) Risk Management and Financial Institutions. 3rd edn. John Wiley &Sons.

Hull, J.C. (2015). Options, futures, and other derivatives. Boston :Prentice Hall,