Chapter 6: Bond Pricing and Valuation Basics

In this section

• Present Value Concepts and Calculation Methods
  Explore the foundations of present value, time value of money, and how discounting shapes bond prices. Master the key formulas, compounding conventions, and practical techniques for valuing fixed-income instruments.
• Yield-to-Maturity and Other Yield Measures
  Detailed coverage of yield-based metrics in bond valuation, focusing on yield-to-maturity (YTM), yield-to-call, yield-to-put, and yield-to-worst, with real-world examples and advanced portfolio implications.
• Accrued Interest, Full Price, and Clean Price
  Explore how accrued interest, full price, and clean price interact in bond valuation. Understand day-count conventions, calculate settlement amounts, and recognize real-world implications.
• Matrix Pricing and Comparable Bond Analysis
  A comprehensive guide on matrix pricing and comparable bond analysis for estimating yields and valuing bonds when direct price quotes are unavailable, including a focus on selecting comparable securities, interpolation, and real-world considerations.
• Floating-Rate Instruments and Money Market Yields
  Explore the mechanics, valuation, and risk considerations of floating-rate notes and money market instruments, including reference rates, day-count conventions, and short-term yield measures.
• Valuation of Bonds with Irregular Coupon Periods
  Learn how to accurately value bonds with short or long first coupons, off-cycle payments, and partial periods, while adapting to day count conventions and advanced yield calculations.
• Bond Valuation Using Yield Curve Models
  Learn how to refine bond valuation using spot rate and forward rate curves, exploring short-rate models (Ho-Lee, Vasicek, and CIR), bootstrapping techniques, and practical valuation examples.
• Calculating Yields for Index-Amortizing Bonds
  Explore index-amortizing bond structures, learn how to model their shifting principal payments, and master the yield calculation process.
• Sensitivity Analysis for Bond Cash Flows
  Explore how changes in interest rates, credit spreads, and embedded options affect bond cash flows through scenario analysis, stress testing, and advanced sensitivity metrics.
• Sinking Fund Provisions: Pricing and Credit Considerations
  Explore how sinking fund provisions affect bond pricing and credit quality, including call-like risk, reinvestment challenges, and practical valuation techniques.
• Bond Valuation in a Multi-Curve Environment
  Explore how modern bond valuation leverages multiple yield curves, including OIS and credit curves, to arrive at more accurate bond prices.
• Weighted Average Life (WAL) Calculations
  Learn the fundamentals and practical applications of Weighted Average Life (WAL) for understanding principal repayment timing in amortizing bonds and structured products.
• Bond Accounting under IFRS vs. US GAAP: Premium and Discount Amortization
  Explore the crucial differences and similarities between IFRS and US GAAP on how bond premiums and discounts are amortized, focusing on effective interest rate methods, classification rules, and reclassification triggers.
• Monte Carlo Simulation in Bond Pricing
  Discover how Monte Carlo simulation is applied to bond pricing, particularly for path-dependent fixed-income instruments, and learn practical techniques for calibrating, running, and interpreting stochastic models in real-world scenarios.
• Cross-Currency Swaps and Implications for Bond Valuation
  Explore how cross-currency swaps work, their role in hedging foreign exchange risk, and their impact on bond valuation in international markets.
• Day Count Conventions and Their Effects on Accrued Interest
  A practical yet comprehensive exploration of day count conventions, their role in bond pricing, and the impact on accrued interest and yield, with real-world examples and best practices.