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ADMS4504-FinalFormulaSheet-F10 - School of Administrative...

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1 School of Administrative Studies Faculty of Liberal Arts and Professional Studies York University AP/ADMS4504 Fixed Income Securities and Risk Management Fall 2010 Final Exam Formula Sheet Duration is computed as: ) y ( V 2 V V 0 Δ + , and convexity , ) y ( V 2 V 2 V V 2 0 0 Δ + = + where Δ y = change in yields in decimal, V 0 = initial price, V - = price if yields decline by Δ y , and V + = price if yields increase by Δ y The traditional approach to bond valuation: price of a bond = PV (coupons) + PV (face value) = t t ) r 1 ( ) r 1 ( r 1 r 1 C + + + × value Face PV of an annuity = + × t ) r 1 ( r 1 r 1 C ; FV of an annuity = + × r 1 ) r 1 ( C t The floating rate payment on an interest rate swap is calculated as: 360 quarter in days of number rate) (floating amount notional × × The fixed rate payment on an interest rate swap is calculated as: 360 quarter in days of number rate) (swap amount notional × × The sample variance of daily interest rates (or yields) is calculated as: , 1 ) ( Variance 1 2 = = T X X T t t and standard deviation = , Variance where X t = percentage change in yields on Day t , i.e., )], y y [ln( 100 X 1 t t t = where y t is the yield on Day t ; X = the sample mean for variable X t ; and T is the number of observations for the daily percentage change in yields in the sample
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