The Nitty Gritty of Bond Valuation: A Generalized Methodology for Straight Bond Analysis

55 Pages Posted: 23 Jul 2018 Last revised: 31 Jul 2019

See all articles by Wadim Djatschenko

Wadim Djatschenko

European University Viadrina Frankfurt (Oder)

Date Written: July 24, 2019

Abstract

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

Djatschenko, Wadim, The Nitty Gritty of Bond Valuation: A Generalized Methodology for Straight Bond Analysis (July 24, 2019). Available at SSRN: https://ssrn.com/abstract=3205167 or http://dx.doi.org/10.2139/ssrn.3205167

Wadim Djatschenko (Contact Author)

European University Viadrina Frankfurt (Oder) ( email )

Grosse Scharrnstr. 59
Frankfurt (Oder), Brandenburg 15230
Germany

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