Bond Prices (bond + price)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting91%

Selected Abstracts

Bond Price and Impulse Response Function for the Balduzzi, Das, Foresi and Sundaram (1996) Model

ECONOMIC NOTES, Issue 3 2004
Martino Grasselli
In this paper, we analyse the Affine Term Structure Model (ATSM) proposed by Balduzzi, Das, Foresi and Sundaram (BDFS, 1996) and provide the closed-form expression of the bond price. In addition, we extend the notion of Impulse Response Function to the class of ATSM. We show that it is closely related to the duration measure, and we compute it explicitly in the BDFS model. [source]

Risk-free bond prices in incomplete markets with recursive multiple-prior utilities

INTERNATIONAL JOURNAL OF ECONOMIC THEORY, Issue 2 2006
Chiaki Hara
D52; D91; E21; E44; G12 We consider an exchange economy under uncertainty, in which agents' utility functions may be recursive and the expected utility calculation may be based on multiple priors. The utility functions representing risk attitudes and intertemporal substitution are negative exponential functions. These utility functions and the access to asset markets may arbitrarily differ across agents. We prove that the risk-free bond price goes down (and the interest rate goes up) monotonically as the market incompleteness diminishes. We also find the range of equilibrium bond prices that depends on the primitives of the economy but not on the structures of asset markets. [source]

Strip Bonds and Arbitrage Bounds

CANADIAN JOURNAL OF ADMINISTRATIVE SCIENCES, Issue 2 2000
Paul Halpern
If the price of a coupon bond is sufficiently different from the sum of the prices of its stripped components, arbitrage trades between the two will be profitable. We estimate the size of the price difference between the prices of a coupon bond and a replicating package of strip bonds. When the price of a coupon bond exceeds the value of the replicating package of strips, the difference between the coupon bond price and the price of the package of strips is much greater than when the price of the coupon bond is below the price of the package of replicating strip bonds. This difference persists under a variety of assumptions about taxation and transaction costs, and appears to indicate market inefficiency. Résumé Si le prix d'une obligation à coupons est suffisamment différent de la somme de ses éléments détachés, un échange à l'arbitrage entre les deux sera profitable. Nous estimons l'importance de la différence de prix entre le coǒt d'une obligation à coupons et celui d'un bloc reproductif d'obligations coupons détachés. Quand le prix d'une obligation à coupons dépasse la valeur du bloc reproductif de coupures, la différence entre le prix de l'obligation à coupons et celui du bloc de coupures est beaucoup plus importante que lorsque le prix de l'obligation à coupons est sous le prix du bloc reproductif d'obligations coupons détachés. Cette différence persiste sous une variété de suppositions basées sur les coǒts d'imposition et de transaction, et semble indiquer un manque de rendement du marché. [source]

Threshold Dynamics of Short-term Interest Rates: Empirical Evidence and Implications for the Term Structure

ECONOMIC NOTES, Issue 1 2008
Theofanis Archontakis
This paper studies a nonlinear one-factor term structure model in discrete time. The short-term interest rate follows a self-exciting threshold autoregressive (SETAR) process that allows for shifts in the intercept and the variance. In comparison with a linear model, we find empirical evidence in favour of the threshold model for Germany and the US. Based on the estimated short-rate dynamics we derive the implied arbitrage-free term structure of interest rates. Since analytical solutions are not feasible, bond prices are computed by means of Monte Carlo integration. The resulting term structure captures stylized facts of the data. In particular, it implies a nonlinear relation between long rates and the short rate. [source]

Wars and Markets: How Bond Values Reflect the Second World War

ECONOMICA, Issue 271 2001
Bruno Frey
Historical events are reflected in asset prices. Based on a unique data-set, we analyse government bond prices of Germany and Austria traded on the Swiss bourse during the Second World War. Some war events generally considered crucial are clearly reflected in government bond prices; this holds, in particular, for the official outbreak of the war and the loss and gain of national sovereignty. Other events to which historians attach great importance are not reflected in bond prices, most prominently Germany's capitulation in 1945. The analysis of financial markets provides a fruitful method for evaluating the importance contemporaries attached to historical events. [source]

Bayesian estimation of financial models

ACCOUNTING & FINANCE, Issue 2 2002
Philip Gray
This paper outlines a general methodology for estimating the parameters of financial models commonly employed in the literature. A numerical Bayesian technique is utilised to obtain the posterior density of model parameters and functions thereof. Unlike maximum likelihood estimation, where inference is only justified in large samples, the Bayesian densities are exact for any sample size. A series of simulation studies are conducted to compare the properties of point estimates, the distribution of option and bond prices, and the power of specification tests under maximum likelihood and Bayesian methods. Results suggest that maximum,likelihood,based asymptotic distributions have poor finite,sampleproperties. [source]

Risk-free bond prices in incomplete markets with recursive multiple-prior utilities

INTERNATIONAL JOURNAL OF ECONOMIC THEORY, Issue 2 2006
Chiaki Hara
D52; D91; E21; E44; G12 We consider an exchange economy under uncertainty, in which agents' utility functions may be recursive and the expected utility calculation may be based on multiple priors. The utility functions representing risk attitudes and intertemporal substitution are negative exponential functions. These utility functions and the access to asset markets may arbitrarily differ across agents. We prove that the risk-free bond price goes down (and the interest rate goes up) monotonically as the market incompleteness diminishes. We also find the range of equilibrium bond prices that depends on the primitives of the economy but not on the structures of asset markets. [source]

Zero-coupon bond prices in the Vasicek and CIR models: Their computation as group-invariant solutions,

MATHEMATICAL METHODS IN THE APPLIED SCIENCES, Issue 6 2008
W. Sinkala
Abstract We compute prices of zero-coupon bonds in the Vasicek and Cox,Ingersoll,Ross interest rate models as group-invariant solutions. Firstly, we determine the symmetries of the valuation partial differential equation that are compatible with the terminal condition and then seek the desired solution among the invariant solutions arising from these symmetries. We also point to other possible studies on these models using the symmetries admitted by the valuation partial differential equations. Copyright © 2007 John Wiley & Sons, Ltd. [source]

A two-mean reverting-factor model of the term structure of interest rates

THE JOURNAL OF FUTURES MARKETS, Issue 11 2003
Manuel Moreno
This article presents a two-factor model of the term structure of interest rates. It is assumed that default-free discount bond prices are determined by the time to maturity and two factors, the long-term interest rate, and the spread (i.e., the difference) between the short-term (instantaneous) risk-free rate of interest and the long-term rate. Assuming that both factors follow a joint Ornstein-Uhlenbeck process, a general bond pricing equation is derived. Closed-form expressions for prices of bonds and interest rate derivatives are obtained. The analytical formula for derivatives is applied to price European options on discount bonds and more complex types of options. Finally, empirical evidence of the model's performance in comparison with an alternative two-factor (Vasicek-CIR) model is presented. The findings show that both models exhibit a similar behavior for the shortest maturities. However, importantly, the results demonstrate that modeling the volatility in the long-term rate process can help to fit the observed data, and can improve the prediction of the future movements in medium- and long-term interest rates. So it is not so clear which is the best model to be used. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23: 1075,1105, 2003 [source]