Ads
related to: can you help me write an essay step by step example of a bond valuation technique using numbers- Free Citation Generator
Get citations within seconds.
Never lose points over formatting.
- Free Punctuation Checker
Fix punctuation and spelling.
Find errors instantly.
- Grammarly for Students
Proofread your writing with ease.
Writing that makes the grade.
- Do Your Best Work
A writing assistant built for work.
Make excellent writing effortless.
- Free Citation Generator
quillbot.com has been visited by 100K+ users in the past month
Search results
Results from the WOW.Com Content Network
Bond valuation is the process by which an investor arrives at an estimate of the theoretical fair value, or intrinsic worth, of a bond. As with any security or capital investment, the theoretical fair value of a bond is the present value of the stream of cash flows it is expected to generate.
The next step is to value the option recursively: stepping backwards from the final time-step, where we have exercise value at each node; and applying risk neutral valuation at each earlier node, where option value is the probability-weighted present value of the up- and down-nodes in the later time-step.
Valuation is a subjective exercise, and in fact, the process of valuation itself can also affect the value of the asset in question. Valuations may be needed for various reasons such as investment analysis , capital budgeting , merger and acquisition transactions, financial reporting , taxable events to determine the proper tax liability.
discount recursively through the tree using the rate at each node, i.e. via "backwards induction", from the time-step in question to the first node in the tree (i.e. i=0); repeat until the discounted value at the first node in the tree equals the zero-price corresponding to the given spot interest rate for the i-th time-step. Step 2.
Analytic Example: Given: 0.5-year spot rate, Z1 = 4%, and 1-year spot rate, Z2 = 4.3% (we can get these rates from T-Bills which are zero-coupon); and the par rate on a 1.5-year semi-annual coupon bond, R3 = 4.5%. We then use these rates to calculate the 1.5 year spot rate. We solve the 1.5 year spot rate, Z3, by the formula below:
The Z-spread of a bond is the number of basis points (bp, or 0.01%) that one needs to add to the Treasury yield curve (or technically to Treasury forward rates) so that the Net present value of the bond cash flows (using the adjusted yield curve) equals the market price of the bond (including accrued interest). The spread is calculated iteratively.
The approach arises since the evolution of the option value can be modelled via a partial differential equation (PDE), as a function of (at least) time and price of underlying; see for example the Black–Scholes PDE. Once in this form, a finite difference model can be derived, and the valuation obtained. [2]
The value of an essay should be understood in context, using common sense and discretion. Essays can be written by anyone and can be long monologues or short theses, serious or humorous. Essays may represent widespread norms or minority viewpoints. An essay, as well as being useful, can potentially be a divisive means of espousing a point of view.
Ads
related to: can you help me write an essay step by step example of a bond valuation technique using numbersquillbot.com has been visited by 100K+ users in the past month