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fixed-income

1. YouTube T4-40: Fixed Income: Bullet versus Barbell Bond Portfolio

The bullet portfolio invests in a single medium-term bond. The corresponding barbell portfolio invests the same amount of capital and achieves the same duration, but invests in a mix of the short-term plus long-term bond. But the barbell portfolio will have greater convexity. Tuckman explains...
2. YouTube T4-39: Fixed Income: Impact of Yield and Coupon on Duration and DV01

The previous videos in this playlist have illustrated how we calculate the two most popular measures of single factor interest rate sensitivity, that is duration and dv01, also called price value of the basis point. Now, knowing how these calculations work we will apply them to understand some...

9. YouTube T4-32: Fixed income: Bond DV01 (aka, price value of basis point)

Financial Risk Manager (FRM, Topic 4: Valuation and Risk Models, Fixed Income, Bruce Tuckman Chapter 4, One-factor Risk Metrics and Hedges). The DV01 stands for "dollar value of an .01% (one basis point)." It is also called the Price Value of a Basis Point (PVBP). It is the bond's or fixed...
10. YouTube T4-31: Fixed income: Carry roll down

Financial Risk Manager (FRM, Topic 4: Valuation and Risk Models, Fixed Income, Bruce Tuckman Chapter 3, Returns, Spreads and Yields). The Carry-Roll-Down is the price change in the bond due exclusively to the passage of time. It is only one component of a bond's total profit and loss (P&L). The...
11. YouTube T4-30: Fixed Income: Term Structure Scenarios

Financial Risk Manager (FRM, Topic 4: Valuation and Risk Models, Fixed Income, Bruce Tuckman Chapter 3, Returns, Spreads and Yields). The three basic term structure scenarios are: 1. Realized Forwards; 2. Unchanged Term Structure, and 3. Unchanged Yields. Realized Forwards implicitly assumes...
12. YouTube T4-29: Fixed Income: Yield to Maturity

Financial Risk Manager (FRM, Topic 4: Valuation and Risk Models, Fixed Income, Bruce Tuckman Chapter 3, Returns, Spreads and Yields). Yield to maturity (aka, yield) is the single rate that discounts a bond's cash flows to a present value that matches the bond's traded (observed) price.

Financial Risk Manager (FRM, Topic 4: Valuation and Risk Models, Fixed Income, Bruce Tuckman Chapter 3, Returns, Spreads and Yields). The bond spread is the rate that, when added to the term structure, equates the discounted cash flow to the bond's observed market price. Bond spread is a key...
14. YouTube T4-27: Fixed Income: Gross versus net realized return

Financial Risk Manager (FRM, Topic 4: Valuation and Risk Models, Fixed Income, Bruce Tuckman Chapter 3, Returns, Spreads and Yields). The Gross Realized Return is the holding period return (HPR), so it includes the bond's price change and any coupon income. The Net Realized Return subtracts...
15. YouTube T4-26: Fixed Income: Maturity vs. Bond Price

This follows Tuckman's example in Chapter 2. When the yield is unchanged, a bond pulls to par. HOWEVER, the assumption of unchanged yield is unrealistic. Here we assume the term structure (of spot and forward rates) in unchanged. Specifically, this is a 2.5-year swap (or bond) where the fixed...
16. YouTube T4-25: Fixed Income: Infer discount factors, spot, forwards and par rates from swap rate curve

Financial Risk Manager (FRM, Topic 4: Valuation and Risk Models, Fixed Income, Bruce Tuckman Chapter 2, Spot, Forward and Par Rates). Given the swap rate curve, we can infer the discount function (i.e., set of discount factors), spot rate curve, forward rate curve and par yield curve.
17. YouTube T4-24: Fixed Income: Arbitrage to exploit violation of Law of One Price

Financial Risk Manager (FRM), Topic 4: Valuation and Risk Models, Fixed Income, Bruce Tuckman Chapter 1, Prices Discount Factors and Arbitrage. How do we exploit the Law of One Price (which asserts that--absent confounding factors like liquidity or taxes--is only one set of discount factors)? We...
18. YouTube T4-23: Fixed Income: Twists are steepening or flattening of the yield curve

The drawback of yield-based duration and convexity is that implicitly they must assume a parallel shift in the rate curve. While there can be many non-parallel shift, the two most common are twists and butterflies. A twist is when the curve steepens or flattens. A STEEPENING is when either (i)...
19. YouTube T4-22: Fixed Income: Bond's full/flat price on settlement date

The example follows Bruce Tuckman's example 1.3. The bond settles on June 1st. The previous coupon was paid on February 15th and the next coupon is paid on August 15th; so it has been 106 days since the last coupon and 75 days until the next coupon. The bond matures in about 9.21 years, and has...
20. YouTube T4-21: Fixed income: Law of One Price

The Law of One Price says that only one discount factor exists at each maturity, absent confounding factors. On the first sheet, I demonstrate why "spot rate of 4.0%" is imprecise, yet "discount factors do not lie." On the second sheet, given observed bond prices, depending on the Law of One...