ABOUT A CERTAIN “ANOMALY” IN THE PRICING OF DEBT SECURITIES
ABOUT A CERTAIN “ANOMALY” IN THE PRICING OF DEBT SECURITIES
Author(s): Andrzej KarpioSubject(s): Business Economy / Management, International relations/trade, Methodology and research technology, Financial Markets
Published by: Szkoła Główna Gospodarstwa Wiejskiego w Warszawie
Keywords: debt securities; intrinsic value; interest rate risk; coupon bonds; yield curve;
Summary/Abstract: The intention of the paper is the presentation of some considerations concerned with the problem of debt securities pricing without simplifying assumptions that are commonly used in practice. In the paper the deterministic and descrete time approach is used. On financial markets coupon rates are strictly connected with interest rates described by yield curve. This relation is linear but different structures of bonds can be described by taking into account particular assumptions which refer to the coefficients in this dependence. It is shown that taking into account the dependence of coupons on forward rates leads to not standard dependence of intrinsic value on spot rates. It turns out that the intrinsic value of a bond is not a decreasing function of interest rates, what in a very fundamental way changes the investment risk that accompanies that kind of bonds.
Journal: Metody Ilościowe w Badaniach Ekonomicznych
- Issue Year: XX/2019
- Issue No: 1
- Page Range: 11-19
- Page Count: 9
- Language: English
