July 2011
Beginner
288 pages
7h 22m
English
Content preview from BOND MATH: The Theory Behind the FormulasBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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Periodicity Conversions
A commonly used bond math technique is to convert an annual percentage rate from one periodicity to another. In the bond market, the need for this conversion arises when coupon interest cash flows have different payment frequencies. For example, interest payments on most fixed-income bonds are made semiannually, but on some the payments are quarterly or annually. Identifying relative value necessitates comparing yields for a common periodicity. In the money market, the need for the conversion arises when securities have different maturities. The 1-month, 3-month, and 6-month LIBOR have periodicities of about 12, 4, and 2, respectively, depending on the actual number of days in the time period.
The general periodicity conversion ...
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