[R-SIG-Finance] R-SIG-Finance Digest, Vol 194, Issue 1

[Andrew Lochemes]

Hi Christofer!

If you’re trying to price that specific bond, you could use different
items, but here are a few I use (work in finance, submitting application
for CFA charter this month)

1. Trying to see how it “should be” priced versus the market’s price
- use the yield curve that it is priced in (L+550bps) + the spread across
each payment date.

2. How it’s priced relative to similar securities
- I would use an OAS spread over a risk free Rate of the same (or similar)
maturity
- use can use interpolation to create synthetic yield curves based on a
longer and shorter one.



On Friday, July 3, 2020, <r-sig-finance-request using r-project.org> wrote:

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>    1. Applicable discount rate for coupon paying bond
>       (Christofer Bogaso)
>
> ----------------------------------------------------------------------
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> Message: 1
> Date: Fri, 3 Jul 2020 04:14:11 +0530
> From: Christofer Bogaso <bogaso.christofer using gmail.com>
> To: r-sig-finance using r-project.org
> Subject: [R-SIG-Finance] Applicable discount rate for coupon paying
>         bond
> Message-ID:
>         <CA+dpOJmgnax_UJJqWY1HyshvJQSEBSsNOROKvUOuNN
> jwD9eoiA using mail.gmail.com>
> Content-Type: text/plain; charset="utf-8"
>
> Hi,
>
> I have a small question on pricing a coupon paying bond.
>
> Let say, I have a coupon paying bond issued by a top rated Govt bank
> in UK. Coupon is payable semi-annually. To price the bond what
> discount rate should be applied for each future coupon and principal
> payment?
>
> Should I use term structure of LIBOR? or LIBID? Or average of both? Or
> something else?
>
> Any pointer will be appreciated.
>
> Thanks,
>
>
>
>
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-- 

Andrew Lochemes




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