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Fixed Income

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Analyzing Financial Data and Implementing Financial Models Using R

Part of the book series: Springer Texts in Business and Economics ((STBE))

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Abstract

This chapter covers fixed income securities. We first show how to analyze economic and fixed income market data. Then, we demonstrate how to implement basic fixed income valuation models as well as the calculation of duration and convexity.

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Notes

  1. 1.

    http://finance.zacks.com/bond-market-size-vs-stock-market-size-5863.html.

  2. 2.

    http://www.imf.org/external/pubs/ft/weo /2013/02/weodata/index.aspx.

  3. 3.

    For more details, see Estrella and Trubin [2].

  4. 4.

    See http://www.philadelphiafed.org/research-and-data/real-time-center/livingston-survey/

  5. 5.

    The methodology we show in this section to calculate the present value of a bond can be applied to a Discounted Cash Flow (DCF) analysis of other securities.

  6. 6.

    The price that an investor pays for the bond, including the calculation of the accrued interest, is from the settlement date and not the trade date. The settlement date is usually the trade date plus three trading days (T + 3) for US corporates. However, the number of days after the trade date can vary substantially. For our purposes, we will assume the trade date and settlement date are the same, but we should keep in mind that the trade date and settlement date can be different.

  7. 7.

    Data is obtained from Fixed Income Investor (UK), http://www.fixedincomeinvestor.co.uk.

  8. 8.

    The YTM uses the same calculation as the Internal Rate of Return (IRR). As such, we can use the techniques we discuss in this section to calculate the IRR of other types of investments.

  9. 9.

    Technically, this definition only holds when coupons are reinvested at the YTM of the bond.

References

  1. Crescenzi, A. (2010). The strategic bond investor: Strategies and tools to unlock the power of the bond market (2nd ed.). McGraw-Hill.

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  2. Estrella, A., & Trubin, M. (2006). The yield curve as a leading indicator: Some practical issues. Current Issues in Economics and Finance, 12, 1–7.

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  3. Fabozzi, F. (2009). Bond markets, analysis and strategies (7th ed.). Prentice-Hall.

    Google Scholar 

  4. Huggins, D., & Schaller, C. (2013). Fixed income relative value analysis: A practitioner’s guide to the theory, tools, and trades. United Kingdom: Bloomberg Press.

    Google Scholar 

  5. Thau, A. (2011). The bond book (3rd ed.). McGraw-Hill.

    Google Scholar 

  6. Tuckman, B., & Serrat, A. (2012). Fixed income securities: Tools for today’s markets (3rd ed.). New Jersey: Wiley.

    Google Scholar 

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Author information

Authors and Affiliations

  1. Compass Lexecon, Chicago, Illinois, USA

    Clifford S. Ang

Authors
  1. Clifford S. Ang
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Correspondence to Clifford S. Ang .

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© 2015 Springer International Publishing Switzerland

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Ang, C. (2015). Fixed Income. In: Analyzing Financial Data and Implementing Financial Models Using R. Springer Texts in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-14075-9_8

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