Interest Rate Risk of Corporate Bond Prices on Bombay Stock Exchange (BSE) –Empirical Test of the Duration, Modified Duration and Convexity

Archives Des Sciences Vol 65, No. 9; pp.598-609 ISSN 1661-464X (2012)

12 Pages Posted: 5 Sep 2019

See all articles by Nahid Maleki Nia

Nahid Maleki Nia

Department of accounting and management, Bilesavar branch, Islamic Azad University, Bilesavar, Iran

Hosein Asgari Alouj

Islamic Azad University (IAU) - Bilesavar branch

Ayyoub Sarafraz Pireivatlou

Islamic Azad University (IAU) - Bilesavar branch

Date Written: Sep 2012

Abstract

Duration and convexity are important measures in fixed-income portfolio management and help develop methodologies in interest rate risk management. This article presents valuation of corporate Bonds on Bombay Stock Exchange (BSE) and empirical test of duration, modified duration and convexity of the corporate bonds at BSE in order to determine sensitivity of bonds prices on interest rate changes. The sensitivity of corporate Bonds in BSE on interest rate changes is tested and determined that convexity is more accurate measure as approximation of bond prices changes than duration. The main goal of this study is to determine how non-linear estimation models fit in case of corporate bonds that are traded on BSE and to verify whether they offer reliable results compared with linear regression model on BSE. Also the most relevant contribution of the paper is to obtain a better curve estimation during the time period of March, 2009 -June, 2012 for duration and convexity exposures that contribute to the marginal increment of the coefficient of determination and the construction of a best nonlinear regression model that overcomes the linearity models.

Keywords: Duration, convexity, corporate bonds, interest rate risk

JEL Classification: G1, G12

Suggested Citation

Maleki Nia, Nahid and Asgari Alouj, Hosein and Pireivatlou, Ayyoub Sarafraz, Interest Rate Risk of Corporate Bond Prices on Bombay Stock Exchange (BSE) –Empirical Test of the Duration, Modified Duration and Convexity (Sep 2012). Archives Des Sciences Vol 65, No. 9; pp.598-609 ISSN 1661-464X (2012). Available at SSRN: https://ssrn.com/abstract=3444031

Nahid Maleki Nia (Contact Author)

Department of accounting and management, Bilesavar branch, Islamic Azad University, Bilesavar, Iran ( email )

Iran

Hosein Asgari Alouj

Islamic Azad University (IAU) - Bilesavar branch

Iran

Ayyoub Sarafraz Pireivatlou

Islamic Azad University (IAU) - Bilesavar branch

Iran

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