Bond Markets
• T bill price
• Spot rates implied by forward rates
• 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
Price Sensitity and Hedging
• Dollar value of a basis point
• General bond pricing formula with ann. APR
• Macaulay duration of coupon bond
• Zero coupon bond price and yield
• 1st-order approximation of bond price change
• Perpetuity price and yield
• Annuity price
• Duration
• Macaulay duration of zero coupon bond
• 1st-order approximation of DV01
• Convexity
• Convexity of zero-coupon bond
• Convexity of coupon bond
• Coupon bond price
• 1st-order approximation of duration change
• 2nd-order approximation of bond price change
Term Structure of Interest Rates
• Brandt’s preferred yield model
• Duration of portfolio
• Brandt’s preferred discount function model
• Duration neutral portfolio
Forward rates implied by spot rates
• Volatility weighted duration neutral portfolio
• Regression-based duration neutral portfolio