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Emit mission Nada which ST RIPS . The Separate Trading of Registered Interest and Principle
of Securities (STRIPS) is a government progmm that
facilltates coupon stripping. A band can be delivered to the Treasury for stripping or
reconstitution. All securities are eligible for stripping now, including TIPS. 9;
The promised individual claim to a coupon payment is
called a C-ST RIP and that has a price. - The promised individual claim to the principle is called a ..
P»STRIP and that has a price. " Arbitrage and STRIPS Since we can construct a set of cash ﬂows that match
the cash ﬂows of a treasury note from STRIPS, a
pricing relation should hold Some C-STRIPS and PvSTRlPS appear to be 'rid'i” or
“cheap” relative to coupon paying securities or to
each other. What are some issues? ”91'
— P-STRIPS are not fungible ( interchancgmble
— Liquidity and price quotes ‘ .
- Always remember tales! Yield Curve vs. Spot Curve WedonotwanttouseYTMforacurve—why? . What we want to know Is what the discount rate is
i for a cash flow receive at a particular maturity. swam- We need a zero-coupon bond or a STRIP right? What if we want to use coupon notes or bonds? ., r www~wqmmeu.y. ‘ , , __—‘ _.___-._.._.______._.m.——.—»-.~~ ...
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- Fall '10