April 2019
Intermediate to advanced
426 pages
11h 13m
English
Content preview from Mastering Python for Finance - Second Edition
Become 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,
Start your free trial
An example of bootstrapping the yield curve
Let's illustrate the bootstrapping of the yield curve with an example. The following table shows a list of bonds with different maturities and prices:
|
Bond face value in dollars |
Time to maturity in years |
Annual coupon in dollars |
Bond cash price in dollars |
|---|---|---|---|
| 100 | 0.25 | 0 | 97.50 |
| 100 | 0.50 | 0 | 94.90 |
| 100 | 1.00 | 0 | 90.00 |
| 100 | 1.50 | 8 | 96.00 |
| 100 | 2.00 | 12 | 101.60 |
An investor in a three-month zero-coupon bond today at $97.50 would earn interest of $2.50. The three-month spot rate can be calculated as follows:
Thus, the 3-month zero rate is 10.127% with continuous compounding. The spot rates of ...