Fixed Income Coursework Joelle Miffre

Fixed Income Analysis Coursework QUESTION 1 1. Use Nelson-Siegel example to plot of land the zilch(a)-voucher throw twist as of September, 13 2011. Nelson and Siegel introduced, among the indirect methods, a popular model for pure dis sum up crops. The use of the 3 parameters: for the long end point rate changes, for the short to long term spread and for curvature changes croup directly be tie in to changes in the yield curve. The continuously compounded zero-coupon rates at time zero with maturity ?, R (0, ?) are give by the spare-time performance formula: As a resoluteness we can bringing close together the a priori price thanks to the quest formula: Our intention being to find the best estimators for the quaternary parameters, we strike to earn the constrained minimization of the squared engagement amongst the theoretical prices of each bond ( reckond with the Nelson Siegel parameters) and the loven vexing prices as of September , 13 2011, use the following formula: moreover we know that: 1) Bonds hold up annual coupon payments. 2) The sidereal day count radiation pattern is based on Act/Act day count. 3) The prices of the 10 OATs are clean prices (i.e. market prices), so we need to calculate the accrued interest up to settlement date, to compute the dingy prices (dirty price = clean price + accrued interest).

4) Since we know the maturity date for each bond, we compute the cash menstruum maturities and touch on the time left before new coupon payments. We thus allocate random apprizes to the betas to calculate theoretical prices. accordingly using the solver in Excel with the con trol that zero coupons rates are positive we! minimize the diversity between theoretical prices and dirty prices, and we end up with a value for teta equal to 1,74872. As a result we have the following values for the betas: ------------------------------------------------- = 0.04156; = -0.02771; = -0.05572. 2. Explanation of the shape of the yield curve using the pure expectation theory and the biased...If you want to suit a full essay, order it on our website: OrderEssay.net

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