Skip to content

The steps to calculate duration of a callable bond.

April 16, 2017
  1. Given assumptions about benchmark interest rates, interest rate volatility, and call or put rule, calculate OAS using binomial model.
  2. Impose a small shift in the on-the-run yield curve +Δy
  3. Build a new binomial tree using the new yield curve
  4. Add OAS to each 1-year forward rate to get a “modified” tree.
  5. Compute BV+Δy using modified tree
  6. Repeat steps 2 through 5 using a parallel rate shift of -Δy to estimate value of BV-Δy

From → Asset Valuation

Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: