I suspect that those are par rates, not spot rates.
Search found 1556 matches
- Sat Jan 19, 2019 2:56 am
- Forum: Investing - Theory, News & General
- Topic: Spot Rates for Bonds
- Replies: 3
- Views: 466
Re: Spot Rates for Bonds
- Sat Jan 19, 2019 2:44 am
- Forum: Investing - Theory, News & General
- Topic: Equity beta. What does ishares mean?
- Replies: 12
- Views: 1968
Re: Equity beta. What does ishares mean?
Beta is not a comparison of the security's price to the market's price; it's a comparison of the security's returns to the market's return. Saying that it indicates how the security's price will move with the market is wrong. No doubt there is a simple beta that can be calc'd from annual returns but many market technicians use a price beta which is calc'd using 3 years or more of price data only, usually. When I went to school price beta was very common. What is beta and how to calculate it in Excel? Calculating Beta: Portfolio Math For The Average Investor Price beta may be common, but it's not beta (i.e., the beta that originated in the Capital Asset Pricing Model (CAPM)). However, it is not uncommon for finance types to misuse terms the...
- Thu Jan 17, 2019 6:19 pm
- Forum: Investing - Theory, News & General
- Topic: Equity beta. What does ishares mean?
- Replies: 12
- Views: 1968
Re: Equity beta. What does ishares mean?
“Beta is a measure of the tendency of securities to move with the market as a whole. A beta of 1 indicates that the security's price will move with the market. A beta less than 1 indicates the security tends to be less volatile than the market, while a beta greater than 1 indicates the security is more volatile than the market. This definition is wrong. Beta is not a comparison of the security's price to the market's price; it's a comparison of the security's returns to the market's return. Saying that it indicates how the security's price will move with the market is wrong. Beta is the product of the relative volatility of security's returns to the market's returns and the correlation of the security's returns and the market's returns. To...
- Fri Jul 06, 2018 9:07 am
- Forum: Investing - Theory, News & General
- Topic: Yield curves and bond returns
- Replies: 31
- Views: 3792
Re: Yield curves and bond returns
I believe that the most common use of the terms "roll return" or "roll yield" relates to profits (or losses) from rolling expiring forward/futures contracts into new forward/futures contracts.
You're describing "riding the yield curve" or "rolling down the yield curve". But I've never heard that called roll return or roll yield.
At least, it wasn't when I was at PIMCO for 6 years. (However, I am aware that finance people love to co-opt terms from other markets, so your usage may be in vogue today.)
- Tue May 22, 2018 2:04 am
- Forum: Investing - Theory, News & General
- Topic: Do I understand duration correctly?
- Replies: 33
- Views: 3431
Re: Do I understand duration correctly?
I know of three useful working definitions for duration: 1. Weighted average time for repayment of all coupons and principal at end 2. Time at which a bond holder is indifferent to a one time change in interest rates because of reinvestment of coupons at new interest rate 3. A measure of price sensitivity to interest rate changes Dave For whatever it's worth, 1 and 2 are Macaulay duration, 3 is modified (or effective) duration. For fixed-rate bonds without options, Macaulay duration is close to modified duration (and modified duration equals effective duration). For bonds with options (e.g., callable bonds, putable bonds, prepayable bonds (such as mortgage-backeds)) or floating-rate bonds, Macaulay duration is close to modified duration, b...
- Tue Sep 30, 2014 12:07 am
- Forum: Investing - Theory, News & General
- Topic: what is risk?
- Replies: 116
- Views: 8862
Re: what is risk?
Yet another type of risk is opportunity cost, the money you don't make while waiting for something that may never happen. This one is easy to overlook because the financial press never runs scary stories about it. You can never eliminate all forms of risk, just decide which ones apply to your situation and work to minimize those. Opportunity cost may or may not be a risk; it will depend on whether its value and timing is uncertain. If the value is certain and its timing is certain, it isn't a risk. Risk goes to zero as outcomes approach certainty, yes. The problem is that investors know a lot of things that sometimes turn out not to be true. As you say: that's a problem. The fact that people are ill-informed doesn't change the fact that a ...
- Mon Sep 29, 2014 10:46 am
- Forum: Investing - Theory, News & General
- Topic: what is risk?
- Replies: 116
- Views: 8862
Re: what is risk?
Most people in finance use the terms "volatility" and "correlation" very loosely, and never really know to what characteristic of a security volatility and correlation apply.grayfox wrote:First, what is volatility? from Wikipedia, Volatility (finance).In finance, volatility is a measure for variation of price of a financial instrument over time.
In Modern Portfolio Theory, they apply to returns, not to prices. So saying that volatility is a measure of the variation of the price of a financial instrument over time is, well, completely wrong. It's a measure of the variation of the returns of a financial instrument over time, which is a very different beast.
- Mon Sep 29, 2014 1:23 am
- Forum: Investing - Theory, News & General
- Topic: what is risk?
- Replies: 116
- Views: 8862
Re: what is risk?
Number 1 is a problem, but it is not a risk.richard wrote:Which is riskier:
1) Certain to miss your goal by a large margin.
2) May miss your goal by a large margin, may exceed your goal by a large margin.
Under Bob's definition, 2 is riskier - it has more "Uncertainty of outcomes". I find it hard to believe anyone would prefer 1. If so, does that mean everyone would prefer more risk to less risk?
People prefer things for many reasons. They generally prefer less risk to more risk. They generally prefer fewer problems to more problems. They generally prefer small problems to big problems. Sometimes those preferences conflict; the resolution doesn't undermine any of the three statements I just made.
- Mon Sep 29, 2014 1:20 am
- Forum: Investing - Theory, News & General
- Topic: what is risk?
- Replies: 116
- Views: 8862
Re: what is risk?
Opportunity cost may or may not be a risk; it will depend on whether its value and timing is uncertain. If the value is certain and its timing is certain, it isn't a risk.telemark wrote:Yet another type of risk is opportunity cost, the money you don't make while waiting for something that may never happen. This one is easy to overlook because the financial press never runs scary stories about it. You can never eliminate all forms of risk, just decide which ones apply to your situation and work to minimize those.
- Mon Sep 29, 2014 1:14 am
- Forum: Investing - Theory, News & General
- Topic: what is risk?
- Replies: 116
- Views: 8862
Re: what is risk?
Markowitz never suggested using volatility (of returns) to mean risk, or as a measure of risk. All he did was to say that if you use expected return to measure reward and standard deviation of returns to measure risk, all of his theory still holds.richard wrote:When Harry Markowitz developed Modern Portfolio Theory in the 1950s, he needed a way to quantify risk. This was before modern digital computers, so he needed a means of quantifying risk that was easy to compute. Volatility met those criteria.
- Mon Sep 29, 2014 1:10 am
- Forum: Investing - Theory, News & General
- Topic: what is risk?
- Replies: 116
- Views: 8862
Re: what is risk?
Howard Marks spoke at the CFA Orange County (CA) annual meeting 1½ weeks ago.pkcrafter wrote:Howard Marks of Oaktree Capital has done some good work on risk.
http://www.google.com/url?sa=t&rct=j&q= ... 7554,d.cGU
I wish that I'd had the chance to talk to him at length after the meeting. As one who has worked and consulted in risk management for 14 years, I would have loved to spend a lot of time discussing what, exactly, risk is.
- Fri Sep 12, 2014 9:35 am
- Forum: Investing - Theory, News & General
- Topic: Buffett: Modern investment theory is horse-pucky
- Replies: 119
- Views: 15279
Re: Buffett: Modern investment theory is horse-pucky
A silly generalization.Tigermoose wrote:Most theory is.
- Wed Aug 20, 2014 12:31 pm
- Forum: Investing - Theory, News & General
- Topic: The Worst Investment You Can Make: Buying a Home
- Replies: 135
- Views: 26606
Re: The Worst Investment You Can Make: Buying a Home
That depends on how you calculate the value of your returns.marbleous wrote:The Worst Investment You Can Make: Buying a Horse
I've never regretted buying any of our horses.
- Sun Aug 10, 2014 4:51 pm
- Forum: Investing - Theory, News & General
- Topic: Math question: how to combine two return series?
- Replies: 13
- Views: 2286
Re: Math question: how to combine two return series?
Yes.blueleaf wrote:If you get a combined return series using weighted average return for each year, can't you then just take the stdev of the combined (portfolio) return series?
The portfolio return each period will just be 0.75(stock return i) + 0.25(bond return i). You now have a return series for the portfolio, so you can calculate means return, standard deviation of returns, skewness, kurtosis, and so on. Go wild!
- Sat Aug 09, 2014 11:14 am
- Forum: Investing - Theory, News & General
- Topic: The Worst Investment You Can Make: Buying a Home
- Replies: 135
- Views: 26606
Re: The Worst Investment You Can Make: Buying a Home
It is neither that plain nor that simple.thx1138 wrote:A home that is your residence is not an investment, it is an expense plain and simple.
- Fri Aug 01, 2014 3:45 pm
- Forum: Investing - Theory, News & General
- Topic: Dividend Strategy Ain't For Everyone
- Replies: 149
- Views: 17680
Re: Dividend Strategy Ain't For Everyone
Does too!Aptenodytes wrote:Magic doesn't work.
- Thu Jul 31, 2014 12:33 am
- Forum: Investing - Theory, News & General
- Topic: Expected Future Yield Curve
- Replies: 22
- Views: 2549
Re: Expected Future Yield Curve
What's the 2-year rate today?
- Tue Jul 29, 2014 4:52 pm
- Forum: Investing - Theory, News & General
- Topic: bond duration and interest rate risk
- Replies: 33
- Views: 5156
Re: bond duration and interest rate risk
Nor is modified duration.acegolfer wrote:You are right. I thought we were talking about Macaulay duration, which is not affected by call provision.Chan_va wrote: See here.
"Unlike a noncallable bond, a callable security’s duration, or sensitivity to interest rate changes, decreases when rates fall and increases when rates rise. - See more at: http://www.investinginbonds.com/learnmo ... mhJk0.dpuf"
Without saying so, they're talking about effective duration (which is affected by changes in cash flows).
- Wed Jul 23, 2014 1:14 pm
- Forum: Investing - Theory, News & General
- Topic: Is there any downside to investing in bond futures?
- Replies: 89
- Views: 8861
Re: Is there any downside to investing in bond futures?
Yup.Tanelorn wrote:Thank you magician for correcting my math on the futures pricing.
More generally, would it be right to say that a fully collateralized position of rolling front month treasury futures, say 10 year ones, would approximate have the same interest rate risks and returns as a treasury bond fund with the same duration as whatever is typical of the 10 year cheapest to deliver treasury bond?
The downside would be all of the transaction costs every time you roll over the futures.
- Wed Jul 23, 2014 10:27 am
- Forum: Investing - Theory, News & General
- Topic: Is there any downside to investing in bond futures?
- Replies: 89
- Views: 8861
Re: Is there any downside to investing in bond futures?
The price is the future price, decreased by the future value of the coupons you won't receive. I covered that. The underlying is a theoretical, 20-years-to-maturity, 6% coupon, noncallable T-Bond. The futures price is S0 × (1+r)^T, where S0 is the (theoretical) price for the (theoretical) underlying bond. You sound like who knows Treasury futures. But there are still a few points you got wrong. 1. There's no 20-yr Treasury futures. The traded futures are 10yr, 5-yr, 2-yr and 30-yr "Ultra" futures. 2. The formula S0*(1+r)^T is a forward price formula. It works for futures, only if the underlying asset price is unaffected by the interest rate. 3. There's no theoretical 20-yr 6% T-bond selling today for $1022.15. 4. To be 100% accur...
- Wed Jul 23, 2014 9:43 am
- Forum: Investing - Theory, News & General
- Topic: Is there any downside to investing in bond futures?
- Replies: 89
- Views: 8861
Re: Is there any downside to investing in bond futures?
The price of a bond futures will be (surprise, surprise!) the future value of today's price on the bond, increased at the risk-free rate for the term of the futures contract. F0 = Future value of today's price increased at the Rf? What do you mean by future value of today's price? How do you know what that will be? Suppose that a 20-year Treasury Bond is selling today for $1,022.15, and the the 3-month risk-free rate is 0.5% (2.0% annually). Then the price of a 3-month futures contract on that T-Bond is $1,022.15 × 1.005 = $1,027.26. That's the price you'll pay (in 3 months) for that T-Bond. 2 points. 1. Then you should have stated "The price of a bond futures will be (surprise, surprise!) the future value of today's price on the bond...
- Wed Jul 23, 2014 9:33 am
- Forum: Investing - Theory, News & General
- Topic: Is there any downside to investing in bond futures?
- Replies: 89
- Views: 8861
Re: Is there any downside to investing in bond futures?
If you have the long position in a futures contract, you'll be buying a defaulted bond.longinvest wrote:What happens if the bond defaults?
Just as if you'd owned the bond itself. No difference.
(So, you might consider buying a CDS as well . . . .)
- Wed Jul 23, 2014 9:06 am
- Forum: Investing - Theory, News & General
- Topic: Is there any downside to investing in bond futures?
- Replies: 89
- Views: 8861
Re: Is there any downside to investing in bond futures?
I'm glad to hear that; thanks.TomatoTomahto wrote:This has been interesting to read, but I'd be lying if I said that I understood most of it (magician, you got me the closest to understanding).
The takeaway is: unless you're planning to take advantage of the leverage offered (and apart from the differing tax treatment), buying (i.e., taking the long position in) a bond futures contract is exactly the same as buying the underlying bond. You might as well buy the bond and be done with it.
- Wed Jul 23, 2014 9:02 am
- Forum: Investing - Theory, News & General
- Topic: Is there any downside to investing in bond futures?
- Replies: 89
- Views: 8861
Re: Is there any downside to investing in bond futures?
So here's a question for market timer, magician, or someone else who really understands these things: if you wanted exposure to a 2 year treasury and bought a 2 year future contract for delivery 2 years from now, is the price you would expect to pay now for that future be the notional of the contract discounted by the difference between the risk free rate and the interest rate paid on the 2 year note? To be more concrete, if risk free was 0.25% and a 2 year treasury paid 1% (both annualized), we would expect the PV of a $100 bond to be $100/(1+0.75%)^2 = $98.52 and hence that would be the future contract price? If so, we could expect to earn both the $1.48 difference between now and maturity by holding the future, as well as whatever we ea...
- Wed Jul 23, 2014 8:43 am
- Forum: Investing - Theory, News & General
- Topic: Is there any downside to investing in bond futures?
- Replies: 89
- Views: 8861
Re: Is there any downside to investing in bond futures?
Suppose that a 20-year Treasury Bond is selling today for $1,022.15, and the the 3-month risk-free rate is 0.5% (2.0% annually). Then the price of a 3-month futures contract on that T-Bond is $1,022.15 × 1.005 = $1,027.26. That's the price you'll pay (in 3 months) for that T-Bond.acegolfer wrote:F0 = Future value of today's price increased at the Rf?magician wrote: The price of a bond futures will be (surprise, surprise!) the future value of today's price on the bond, increased at the risk-free rate for the term of the futures contract.
What do you mean by future value of today's price? How do you know what that will be?
- Wed Jul 23, 2014 12:11 am
- Forum: Investing - Theory, News & General
- Topic: Is there any downside to investing in bond futures?
- Replies: 89
- Views: 8861
Re: Is there any downside to investing in bond futures?
Wow. Let's see if I can simplify things here for lee1026 : Taking the long position in bond futures is (nearly) identical to buying the underlying bond. Period. (Oh, sure, there are some minor complexities, but, in essence, they're (nearly) identical. I'll hit the complexities in a minute.) When you buy a bond, you own the bond today. When you take a long position in a bond futures contract, you don't own the bond today, but you have the same risk as if you did, and when the contract expires and you take delivery, you'll own the same bond as you would have had you bought it today. Same upside, same downside, same everything. Absolutely no difference. Period. The price of a bond futures will be (surprise, surprise!) the future value of today...
- Tue Jul 22, 2014 9:24 am
- Forum: Investing - Theory, News & General
- Topic: Can it be wrong to be too risk averse?
- Replies: 49
- Views: 4535
Re: Can it be wrong to be too risk averse?
As a general rule, it's wrong to be too anything.
- Mon Jul 21, 2014 9:07 am
- Forum: Investing - Theory, News & General
- Topic: What to do in a market correction
- Replies: 32
- Views: 4851
Re: What to do in a market correction
No; I just think that it's a stupid term.munemaker wrote:You are reading too much into this.magician wrote:Why 10%? Why not 8%, or 12%, or 15%?stlutz wrote:The traditional definition is a drop > 10% but <20% (which would be a "bear market"). The drop in 2011 was interesting because it was a "bear market" if you look at intraday prices but only a "correction" if you went by close prices.What, exactly, is a market correction?
What about a 10% increase; is that a correction, too? Or is it an anticorrection?
How do we know that the market was "incorrect" before the "correction" but not afterward?
- Mon Jul 21, 2014 12:43 am
- Forum: Investing - Theory, News & General
- Topic: What to do in a market correction
- Replies: 32
- Views: 4851
Re: What to do in a market correction
Why 10%? Why not 8%, or 12%, or 15%?stlutz wrote:The traditional definition is a drop > 10% but <20% (which would be a "bear market"). The drop in 2011 was interesting because it was a "bear market" if you look at intraday prices but only a "correction" if you went by close prices.What, exactly, is a market correction?
What about a 10% increase; is that a correction, too? Or is it an anticorrection?
How do we know that the market was "incorrect" before the "correction" but not afterward?
- Mon Jul 21, 2014 12:10 am
- Forum: Investing - Theory, News & General
- Topic: What to do in a market correction
- Replies: 32
- Views: 4851
Re: What to do in a market correction
What, exactly, is a market correction?
- Mon Jul 21, 2014 12:05 am
- Forum: Investing - Theory, News & General
- Topic: Momentum Investing ?
- Replies: 55
- Views: 8018
Re: Momentum Investing ?
The problem with reversion to the mean is naïvely believing that you know what the mean is.pkcrafter wrote:bs010101, you are right, of course, but some Bogleheads, perhaps the majority, won't chase anything. Furthermore, the opposite of momentum is reversion to the mean.
Paul
- Fri Jul 18, 2014 6:59 pm
- Forum: Investing - Theory, News & General
- Topic: Very high interest rate in other countries? How come?
- Replies: 44
- Views: 5305
Re: Very high interest rate in other countries? How come?
You can access higher interest rates in other countries and avoid the risk of exchange controls through the currency futures markets, and you can now access the futures markets though Schwab (since it has acquired OptionsXpress). You would need to roll over the futures contracts 4 times a year. The bid-ask spread can be 0.01% for some developed currencies and 0.1% for some emerging market ones. Futures contracts are priced to incorporate interest rate differentials, so the futures contracts on high-yielding currencies trade at a discount to spot levels. Futures brokerages allow you to use a lot of leverage, but you can decide not to let the notional value of your futures positions exceed the equity in your account. Profits and losses on fu...
- Fri Jul 18, 2014 6:58 pm
- Forum: Investing - Theory, News & General
- Topic: Very high interest rate in other countries? How come?
- Replies: 44
- Views: 5305
Re: Very high interest rate in other countries? How come?
Hence: carry trade.Beliavsky wrote:My reading of the academic research is that higher interest rate currencies tend to depreciate against lower rate ones, but by less than the interest rate differential. So it has been profitable to own higher rate currencies, but the profit has been less than the nominal rate spread.
Which works well . . . until it doesn't. And when it doesn't, it doesn't in spades, disastrously.
- Mon Jul 14, 2014 2:30 pm
- Forum: Investing - Theory, News & General
- Topic: How do I model 20 yr Treasury portfolio impact?
- Replies: 37
- Views: 4471
Re: How do I model 20 yr Treasury portfolio impact?
Price change is not the same as percentage price change, no matter what you specify.Call_Me_Op wrote:I think you may be putting too fine a point on it. I did not specify dollar price - my statement could as easily been based upon factional price.magician wrote:Not to put too fine a point on it, but (modified) duration is not the first derivative of the price with respect to the yield; dollar duration is the first derivative of price with respect to yield.Call_Me_Op wrote:Duration is the first-derivative of the price versus yield curve.
- Sun Jul 13, 2014 7:39 pm
- Forum: Investing - Theory, News & General
- Topic: How do I model 20 yr Treasury portfolio impact?
- Replies: 37
- Views: 4471
Re: How do I model 20 yr Treasury portfolio impact?
What I hate about this graph is that at left end of it suggests that as the yield approaches zero (percent), the price goes to infinity, which is silly. But finance people always draw the graph like this.acegolfer wrote:
- Sun Jul 13, 2014 7:37 pm
- Forum: Investing - Theory, News & General
- Topic: How do I model 20 yr Treasury portfolio impact?
- Replies: 37
- Views: 4471
Re: How do I model 20 yr Treasury portfolio impact?
Not to put too fine a point on it, but (modified) duration is not the first derivative of the price with respect to the yield; dollar duration is the first derivative of price with respect to yield.Call_Me_Op wrote:Duration is the first-derivative of the price versus yield curve.
- Mon Jul 07, 2014 9:12 am
- Forum: Investing - Theory, News & General
- Topic: Risk Adjusted Return?
- Replies: 61
- Views: 7141
Re: Risk Adjusted Return?
2) If you nonetheless feel you must quantify, use a better measure of risk. There are numerous multi-factor models and models which tie returns to macro-economic factors. Some of the multi-factor models do a better job of explaining past returns than stdev (and it's friend, CAPM). The Fama-French three factor model is rather popular in these parts. And how, exactly, do you use the betas in Fama-French to quantify risk? If one security has a market beta of 0.8, a size beta of 1.2 and a value beta of 1.3, while another has, respectively, 1.2, 0.5, and 1.5, which one is riskier? Why? (As a side note, Fama-French is no less dependent on a security's standard deviation of returns than is CAPM; if σ is CAPM's friend, it's equally Fama-French's f...
- Sun Jul 06, 2014 11:51 pm
- Forum: Investing - Theory, News & General
- Topic: Risk Adjusted Return?
- Replies: 61
- Views: 7141
Re: Risk Adjusted Return?
2) If you nonetheless feel you must quantify, use a better measure of risk. There are numerous multi-factor models and models which tie returns to macro-economic factors. Some of the multi-factor models do a better job of explaining past returns than stdev (and it's friend, CAPM). The Fama-French three factor model is rather popular in these parts. And how, exactly, do you use the betas in Fama-French to quantify risk? If one security has a market beta of 0.8, a size beta of 1.2 and a value beta of 1.3, while another has, respectively, 1.2, 0.5, and 1.5, which one is riskier? Why? (As a side note, Fama-French is no less dependent on a security's standard deviation of returns than is CAPM; if σ is CAPM's friend, it's equally Fama-French's f...
- Thu Jul 03, 2014 5:34 pm
- Forum: Investing - Theory, News & General
- Topic: Why is the market portfolio a tangency portfolio?
- Replies: 35
- Views: 21464
Re: Why is the market portfolio a tangency portfolio?
The tangency portfolio is called the market portfolio, but there is no reason to believe that it is the portfolio comprising all possible investments in proportion to their market weights.
Quite a few people seem to think that it is, but nobody has ever produced a convincing argument (that I've seen) that it must be so. I, for one, don't believe it.
Quite a few people seem to think that it is, but nobody has ever produced a convincing argument (that I've seen) that it must be so. I, for one, don't believe it.
- Tue Jul 01, 2014 4:30 pm
- Forum: Investing - Theory, News & General
- Topic: Bond yield =/= guaranteed return
- Replies: 36
- Views: 4974
Re: Bond yield =/= guaranteed return
Why "technically"?BackInTheBlack wrote:1) Since T-bills technically are zeroes . . . .acegolfer wrote:1. Can a T-bill be called a zero-coupon bond?
- Fri Jun 27, 2014 4:27 pm
- Forum: Investing - Theory, News & General
- Topic: Bond yield =/= guaranteed return
- Replies: 36
- Views: 4974
Re: Bond yield =/= guaranteed return
I've referred to T-Bills as zero-coupon bonds. Frequently.Langkawi wrote:While T-Bills technically share the characteristics of zero-coupon bonds, I've never heard a knowledgeable person refer to them as such.
Whether or not I qualify as a knowledgeable person is another question entirely, however.
- Sun May 04, 2014 11:52 pm
- Forum: Investing - Theory, News & General
- Topic: Options Trading: shooting down the "iron condor"
- Replies: 19
- Views: 4537
Re: Options Trading: shooting down the "iron condor"
Because of trading costs, options trading is a less-than-zero-sum game.Beverage wrote:If you want to learn about options you should read Options As A Strategic Investment. But briefly:
- Options trading is a zero-sum game
- Sun Apr 27, 2014 1:50 am
- Forum: Investing - Theory, News & General
- Topic: Callable bond duration
- Replies: 12
- Views: 3923
Re: Callable bond duration
Again, it isn't necessarily true that YTM will be higher than all of the YTCs. It usually is, but it needn't necessarily be.packer16 wrote:A useful metric is yield to worse as this is lowest return you will get (assuming the firm does not go BK) and your yield to maturity is highest yield.
- Sun Apr 27, 2014 1:48 am
- Forum: Investing - Theory, News & General
- Topic: Callable bond duration
- Replies: 12
- Views: 3923
Re: Callable bond duration
Actually, duration (specifically, effective duration) is defined mathematically as the ratio of the percentage price change to the interest-rate (i.e., yield-to-maturity) change, not the ratio of the price change to the YTM change. For mathematicians, it is the negative of the derivative of the natural logarithm of price (ln(price)) with respect to YTM, not the negative of the derivative of the price with respect to YTM.grabiner wrote:Duration is defined mathematically as the ratio of price change to interest-rate change (for mathematicians, it is the negative of the derivative of price with respect to interest rate).
- Sun Apr 27, 2014 1:30 am
- Forum: Investing - Theory, News & General
- Topic: Callable bond duration
- Replies: 12
- Views: 3923
Re: Callable bond duration
It will trade at yield to call (YTC), which may or may not be the yield to worst. For the yield to worst you need to consider the YTCs for each call provision (as you say, there are typically several), as well as the YTM.packer16 wrote:If your bond looks it is going to be called (based upon coupon being higher than re-fi rate), they will trade at yield to worst. You need to look at the bond specifics but bonds typically have multiple call dates with higher prices for earlier dates (this provides some protection to the bond holder providing a minimum yield (the yield to worst).
- Mon Apr 21, 2014 9:24 am
- Forum: Investing - Theory, News & General
- Topic: Monte Carlo Software
- Replies: 13
- Views: 2507
- Sat Jan 25, 2014 11:39 pm
- Forum: Investing - Theory, News & General
- Topic: Harry Markowitz meets the Efficient Frontier - and blinks
- Replies: 4
- Views: 1376
Re: Harry Markowitz meets the Efficient Frontier - and blink
Don't read too much into that quote.
When I interviewed Dr. Markowitz, I asked him about this story. He said that he had a choice of two investments: stocks and bonds. Thus, every combination of those two is on the minimum variance frontier, and all of those at or above the global minimum variance portfolio is on the efficient frontier. He did, in fact, choose an efficient portfolio.
When I interviewed Dr. Markowitz, I asked him about this story. He said that he had a choice of two investments: stocks and bonds. Thus, every combination of those two is on the minimum variance frontier, and all of those at or above the global minimum variance portfolio is on the efficient frontier. He did, in fact, choose an efficient portfolio.
- Wed Jan 22, 2014 5:19 pm
- Forum: Investing - Theory, News & General
- Topic: Riding the Yield Curve
- Replies: 52
- Views: 6019
Re: Riding the Yield Curve
I don't believe preferred habitat is anywhere close to being as popular as the expectations theory. I don't know about its popularity, but it seems plausible. Insurance companies, for example (which are huge fixed income investors), like to match their assets and liabilities (maturity and duration, if possible); they would definitely have preferred maturities, and would demand extra yield for longer or shorter maturities than their preferred (because either of those will increase their risk). Expectations is more popular because it is more general and explains things well. I'm not sure that it is more general, but it does explain any yield curve shape. The preferred habitat theory may be viewed as a part of the expectations theory. For exa...
- Wed Jan 22, 2014 3:53 pm
- Forum: Investing - Theory, News & General
- Topic: BRK go to for weird risks - NCAA bracket bet
- Replies: 16
- Views: 2218
Re: BRK go to for weird risks - NCAA bracket bet
It probably doesn't give you the best odds, but it gives you the best defense when you miss a pick.Wagnerjb wrote:Do you really need any basketball knowledge? Just pick based on the ranking of the teams. Pick the favorites all the way through. That gives you the best odds.lazyday wrote:odds of picking every winner correctly in a 64-team bracket are less than 1 in 9 quintillion....with some basketball knowledge, that only improves to about 1 in 128 billion, he said in a video posted on YouTube
- Wed Jan 22, 2014 3:22 pm
- Forum: Investing - Theory, News & General
- Topic: Riding the Yield Curve
- Replies: 52
- Views: 6019
Re: Riding the Yield Curve
I don't know about its popularity, but it seems plausible. Insurance companies, for example (which are huge fixed income investors), like to match their assets and liabilities (maturity and duration, if possible); they would definitely have preferred maturities, and would demand extra yield for longer or shorter maturities than their preferred (because either of those will increase their risk).richard wrote:I don't believe preferred habitat is anywhere close to being as popular as the expectations theory.