Bond Duration and Convexity Simplified – Part 1 of 2
While analyzing bonds, it is important to apply the concepts of duration and convexity. Duration has been an excellent tool to forecast the approximate price change of a bond or portfolio of bonds....
View ArticleBond Duration and Convexity Simplified – Part 2 of 2
As we learnt in part 1, the duration, as measured by the slope of the curve, changes as yields change. The slope of the curve is steeper (and the duration is larger) at low yield levels, and becomes...
View ArticleWhy take Excel Training?
Sales figures of a cement depot, student admissions month on month in a training center, cost, budget and sales projections in a retail outlet, movement of brands in a multi-brand cloth store all have...
View ArticleHow to Delete Blank Rows Using Excel VBA?
Here is a simple problem, you have a set of data in an excel sheet, but there are many empty rows. What you want to do is delete these empty rows without changing the order of data or disturbing...
View ArticleFormula to Check if a Cell Contains #N/A
Sometimes you will have a formula in a series of cells and in some of those cells there is an error and the cell displays #N/A. #N/A indicates “Not Applicable” or “Not Available”. #N/A can come in for...
View ArticleCall and Prepayment Risk
A bond may have a call provision that allow the issuer to call the bond back before its maturity date. Since a call feature is a benefit to the issuer, its value is lower than a similar plain vanilla...
View ArticleYield Curve Risk
We know that the bond prices are sensitive to changes in interest rates. When interest rates increase, the bond prices fall and vice versa. A bond’s maturity also influences its price sensitivity to...
View ArticleCarry Markets and Forward Prices
A commodity is said to be in carry when it is being stored rather than traded. The concept is similar to financial markets where this term is called the financial cost of carry. In the case of...
View ArticleExchange Rate Risk in Bonds
Some bonds and other fixed income products also expose the investor to exchange rate risk (also known as currency risk). This happens when the investor purchases bonds that have cash flows in a foreign...
View ArticleInflation Risk in Bonds
Almost all bonds expose an investor to inflation risk, also known as purchasing power risk. It is a risk that the increase in inflation may wipe out the profits from the bond. I’ll take a simple...
View ArticleVolatility Risk in Bonds with Embedded Options
Bonds with embedded options such as call options and put options also have volatility risk. This happens because any factor that affects the value of the embedded option will also impact the value of...
View ArticleEvent Risk and Sovereign Risk in Bonds
Event Risk The investors in bonds may also face event risk, i.e., the risk that the issuer will not be able to meet its interest and principal payment obligations due to a major event that impacts its...
View ArticleConstructing a Real Estate Price Index: The Moroccan Experience
The real estate sector became a centre of attention over the last few years, given the extent of its effects on financial and real spheres and its implications for monetary policy decisions and...
View ArticleALM Overview – Dimensions of Risk Management for a Depository
This document provides an excellent overview of ALM and financial risk management in a Depository. The topics covered include: ALM background and framework Highlights in interest rate risk Regulatory...
View ArticleTypes of Bond Markets
Even though there is no standard classification of bond market, we can broadly classify bonds from the perspective of a country as follows: Internal Bond Market: This is the national bond market of a...
View ArticleCredit Risk and Rating of Sovereign Debt
As we have learned earlier, the investors in bonds are exposed to credit risk as there is a chance that the issuer may default on its obligations. Even though the general perception is that the bonds...
View ArticleFour Methods of Distributing Government Securities
The central governments use one of the following four methods to distribute a new issue of securities: Regular calendar auction / Dutch style auction In this type of auction, there is a regular auction...
View ArticleOverview of U.S. Treasury Securities
The United State’s Treasury issues various types of securities known as US Treasury securities. These securities are backed by full faith and credit of US government, hence, they are perceived to be...
View ArticleFederal Agency Securities
In any country, the central government can create an agency or a separate organization that issues bonds for its various departments and different purposes. The bonds so issued are not directly issued...
View ArticleEquilibrium Formula for Pricing Commodity Forwards
The forward price of a commodity is calculated much along the lines of that of a financial product except for the fact that by virtue of its physical form and characteristics a commodity incurs...
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