The Nitty Gritty of Bond Valuation: A Generalized Methodology for Straight Bond Analysis
55 Pages Posted: 23 Jul 2018 Last revised: 31 Jul 2019
Date Written: July 24, 2019
The multitude of day count conventions and the prevalence of irregular coupon periods constitute a major complication for the comparative analysis of interest accruing securities across markets. I develop the first generalized pricing methodology for straight bonds that allows for irregular coupon periods of any length and precisely accounts for any conceivable day count convention. In a comprehensive compendium, I distinguish between the individual conventions, relating them to each other in a consistent mathematical notation. Using one universal valuation formula, I derive closed form solutions for modified duration and convexity. My R-Package Bond Valuation closes the gap between theory and data.
Keywords: Bond Pricing, International Financial Markets, Financial Regulation, Interest Rate Risk
JEL Classification: G12, G15, G18
Suggested Citation: Suggested Citation