17-Duration - Class Business Current Events Upcoming Case...

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Class Business Current Events Upcoming Case Ratings and the Risk Structure of Interest Rates Default is one of the most important risks a bondholder faces. In fact, independent companies (rating agencies) have arisen to evaluate the creditworthiness of potential borrowers. – Estimate the likelihood that the corporate or government borrower will make a bond’s promised payments. • both macro and micro analysis – These well-known rating agencies (S&P, Moodys, Fitch) are labeled as “nationally recognized statistical rating organizations” (NRSROs)
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Time Series Defaults – From Moody’s research/models
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Default Risk Default and Recovery
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Credit Loss Rates (include default and recovery) Relationship Between Price and Yield Price Yield True Price Yield Relationship P* i*
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Duration and Modified Duration A bond’s interest rate risk can be measured by its relative price change with respect to a change in yield. This is called a bond’s modified duration or
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17-Duration - Class Business Current Events Upcoming Case...

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