讲座固定收益风险管理过去纸质问题duration and convexityL3持续凸度.pdfVIP

Lecture3:FixedIncomeRiskManagement

Pastpaperquestions:

1.Definedurationofabondanddiscussitsusage.07/08

2.Defineconvexityandexplainhowmodifieddurationandconvexityareusedto

approximatebonds’percentagechangeinprice,givenachangeininterestrate.07/08

3.Explainthedurationisatermeasurethanmaturitywhencalculatingbondssensitivity

tochangesininterestrate.Discussthelimitationofduration.09/10

4.‘Wheninterestratesarelow,therewillbelittledifferencweenMacaulayduration

andModifiedduration’.Discuss.09/10

–DiscusstherelationshipweenBondPricingandInterestRates

–ExplainDuration,determinationofDuration

–CalculateModifieddurationMacaulay’sduration.Discussthelimitationsof

Duration

–DemonstratehowtoapproximateDurationandConvexity

–Use40minutestoworkexamplesonlecture1-3

Lecture3:FixedIncomeRiskManagement

1.Interestrate

•Bondpricesandyieldsareinverselyrelated:asyieldsincrease,bondpricefall;vice

versa

•Sincethepriceofabondfluctuateswithmarketinterestrates,theriskthataninvestor

facesisthatthepriceofabondheldinaportfoliowilldeclineifmarketinterestrises.

Theriskisreferredtoasinterestraterisksandisamajorriskfacedbyinvestorsinthe

bondmarket.

2.Bondpricingrelationships

•Inverserelationshipweenpriceandyield.

•Convex:Thepercentageincreaseinpricewhenyieldsdeclineisgreaterthanthe

percentagedecreasewhenyieldsrise.Thisisduetotheconvexrelationship,when

plottedonagraph,weenpriceandyield.

•Se