悉尼大学固定收益证券课件Lecture 3 Corrected[1].pdfVIP

Duration and Convexity Lecture 3 FINC3019 FIXED INCOME SECURITIES DR. ANDREW AINSWORTH FACULTY OF ECONOMICS BUSINESS Last week... › Bond pricing - Integer period to maturity - Non-integer period to maturity - Accrued interest - Zero coupon bonds - T-bills - Repurchase agreements › Yield measures and holding period return › Relationship between yield, price and coupon rate › Any questions on last week’s material? Lecture outline › Bond price volatility › Price value of a basis point › Duration › Modified Duration › Convexity › Reading: Sundaresan Ch 7 Introduction › Bond price volatility refers to the fluctuation of bond prices, up or down › Volatility is non-directional › In the context of volatility fixed income markets focus on the relationship between price and yield › The primary focus is on how a change in the yield of a bond affects its price › Factors such as coupon rate, term to maturity and the pre-existing yield impact on how volatile a bond price is to a change in the yield › Important: We assume that yield curve is flat – the same interest rate applies to all maturities The price-yield relationship Price Convex from origin Yield Bond prices, yield and time to maturity Yield 5% 4-year 5% 30-year 10% 4-year 10% 30-year 4-year zero 30-year zero 3% 109.22 139.38 132.28 237.83 86.17 40.93 4% 104.49 117.38 126.95 204.28 82.