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player
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Joined: August 5th, 2002, 10:00 am

Bond Example

March 30th, 2005, 9:30 am

Can someone give me examples of bonds where the nominal is fixed but the coupons are variable but not linked to interest rate movements (at least directly)? I'm saying this since I'm close to working out a measure which captures the change in price brought about by a change in yield from such bonds and so I'd like some concrete examples of such type of bonds..I've been told variance bonds based of residual variance are an example
 
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davidh96
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Bond Example

March 30th, 2005, 9:52 am

There was a bond issued by a French Rail company a few years back (at least i think it was a french rail co.) whose coupon was positively dependant on oil prices.BNP Paribas are in the process of rolling out a longevity bond, 25 year maturity, whose coupon is directly linked to an EU measure of life expectancy. Obviously this is targeted towards pension funds, in an attempt to offer them a longevity hedge.for more info see:http://www.pensions-institute.org/confe ... i_Mark.pdf
 
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DavidJN
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Bond Example

March 30th, 2005, 10:13 am

Commodity-linked bonds are another example. You should be be able to find material on this topic by Boyle, Brennan & Schwartz and others.
 
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Aaron
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Joined: July 23rd, 2001, 3:46 pm

Bond Example

March 30th, 2005, 9:56 pm

While I agree with the answers you have received, this is not very common. Usually it is the principal repayment that is linked to commodities or equity, the coupon is either fixed or linked to interest rates. I'm not sure if your model would fit a dual currency bond, that's not quite the same thing. Power reverse dual currency notes are a more elaborate version.Typically a contract with variable periodic payments is structured as a swap rather than a bond. But that shouldn't make any difference for theoretical pricing. In that case, you could use any swap except an interest rate swap.
 
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exotiq
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Joined: October 13th, 2003, 3:45 pm

Bond Example

March 31st, 2005, 1:03 am

Yes, there are tons of different examples in the structured note world, if that's what you are referring to. Amongst what these are called are index-linked notes, equity-linked notes, target redemption notes, autocallables, napoleons, cliquets, bicycles, tandems, and loads of other names...Any specific one you are interested in learning more about?
 
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player
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Bond Example

March 31st, 2005, 7:30 am

Thanks for the replies. At the moment what I’m working on is appearing as a Chapter on my PhD. What is original about this paper is that I’m trying to show an old tool which has a new application in finance which has not been done before. (e.g the first papers using copulas in finance or Mallivian Calculus in finance!!!). I’m doing this by showing its use in a bond which has coupon payments which are floating while the principal is fixed. The use, as I stated before, is by finding a figure which can work out accurately the change in the price brought about by a change in the yield. Hence it works like a duration measure but is more accurate than this.Obviously once I’ve done this, I’d like to apply this new technique to more complicated structures e.g. MBS but for the moment I’d like to know about structures which fit the original template e.g. fixed principal + floating coupons. I’m not an expert in these types of bonds that were mentioned before but if you can tell me which of these types fit this typical structure it would be most appreciated.On a further note can someone tell me how useful this new type of “duration” measure would be in practical terms.
 
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fa
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Bond Example

March 31st, 2005, 6:25 pm

Player, May I ask if your work is an extension of the papers below?Michael J. Osborne, On the computation of a formula for the duration of a bond that yields precise results, The Quarterly Review of Economics and Finance, Volume 45, Issue 1, February 2005, Pages 161-183Osborne, Michael J., A Simple, Accurate Formula for the Duration of a Portfolio of Bonds Under a Non-Parallel Shift of a Non-Flat Yield Curve, September 5, 2004. http://ssrn.com/abstract=587242
 
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player
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Bond Example

March 31st, 2005, 8:24 pm

Yes