ch04 - Bond Price Volatility Chapter 4 Price Volatility...

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    Bond Price Volatility Chapter 4
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    Price Volatility Characteristics Exhibit 4-3. Instantaneous Percentage Price Change for 6 Hypothetical Bonds Six hypothetical bonds, priced initially to yield 9%: 9% coupon, 5 years to maturity, price = $100.0000 9% coupon, 25 years to maturity, price = 100.0000 6% coupon, 5 years to maturity, price = 88.1309 6% coupon, 25 years to maturity, price = 70.3570 0% coupon, 5 years to maturity, price = 64.3928 0% coupon, 25 years to maturity, price = 11.0710 Yield Change Change Percentage Price Change (coupon/maturity in years) to: in BP 9%/5 9%/25 6%/5 6%/25 0%/5 0%/25 6 –300 12.8 38.59 13.47 42.13 15.56 106.04 7 –200 8.32 23.46 8.75 25.46 10.09 61.73 8 –100 4.06 10.74 4.26 11.6 4.91 27.1 8.5 –50 2 5.15 2.11 5.55 2.42 12.72 8.9 –10 0.4 1 0.42 1.07 0.48 2.42 8.99 –1 0.04 0.1 0.04 0.11 0.05 0.24 9.01 1 –0.04 –0.10 –0.04 –0.11 –0.05 –0.24 9.1 10 –0.39 –0.98 –0.41 –1.05 –0.48 –2.36 9.5 50 –1.95 –4.75 –2.05 –5.09 –2.36 –11.26 10 100 –3.86 –9.13 –4.06 –9.76 –4.66 –21.23 11 200 –7.54 –16.93 –7.91 –18.03 –9.08 –37.89 12 300 –11.04 –23.64 –11.59 –25.08 –13.28 –50.96
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    Price Volatility of Option-Free Bond Although the prices of all option-free bonds move in opposite direction from the change in yield required, the % price change is not the same for all bonds. For very small changes in the yield required, the % price change for a given bond is roughly the same, whether the yield required increases or decreases. For large changes in the required yield, the % price change is not the same for an increase in the required yield as it is for a decrease in the required yield. For a given large change in basis points, the % price increase is greater than the % price decrease.
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    Price Volatility For a given term to maturity and initial yield, the price volatility of a bond is greater, the
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This note was uploaded on 09/22/2008 for the course HKIT 211 taught by Professor Wang during the Spring '08 term at Hong Kong Institute of Vocational Education.

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ch04 - Bond Price Volatility Chapter 4 Price Volatility...

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