Module 36.5 LOS 36.i: Calculate and interpret effective duration of a callable or putable bond
We cannot use modified duration and convexity measures on bonds with embedded options as there cash flows change if an …
fixed income
Module 36.1 LOS 36.a: Characteristics of bonds with embedded options
Adding embedded options to a bond allow issuers to manage interest rate risk and improve the initial coupon rate. A …
Module 34.3 LOS 34.f: The Swap Rate Curve
Market participants prefer the swap rate curve as a benchmark interest rate curve rather than a government bond yield curve …
Module 34.6 LOS 34.i: Overview of Fixed Income Duration Concepts
Effective duration measures price sensitivity to small parallel shifts in the yield curve. Key rate duration is the sensitivity of the value …
Module 37.4 LOS 37.d: Option Analogy of Structural Models of Debt and Reduced Form Models
Structural models of credit risk rely on the option pricing theory and analysis of the company’s balance sheet. They help …
Module 36.4 LOS 36.h: Effect of interest rate volatility on OAS
Recall that the OAS is a spread that adjusts for the difference between the modeled value of a bond (binomial …
Module 36.6 LOS 36.k and 36.i: One-sided durations and convexity of option bonds
When bonds come with embedded options, one-sided durations are better at capturing interest rate sensitivity. One-sided duration only captures sensitivity …
Module 34.6 LOS 34.k: Modern Term Structure Theory Differences
Structural Model Structural models of credit risk are based on issuer balance sheets and option pricing theory. The oft-given analogy …
Module 35.1-35.3, 36.2 Binomial Pricing Models, including Option Bonds
How to use a binomial interest rate tree to find bond prices One method that we use to value bonds …
Module 34.5: Traditional term structure theories
Forward Rate Model The forward rate model allows us to derive a future spot rate from the current spot rate …