Serving the Quantitative Finance Community

 
User avatar
Maxx07
Topic Author
Posts: 1
Joined: February 27th, 2016, 11:27 am

Ultra Long Bond

January 30th, 2021, 5:08 pm

Hi All, 

Any idea how do financial institutions go about pricing ultra-long bonds (100y bonds for example) with no liquid points after 30-50 years I suppose? 

Can't wait to read your thoughts about it! 

Regards, 

Maxime
 
User avatar
bearish
Posts: 5188
Joined: February 3rd, 2011, 2:19 pm

Re: Ultra Long Bond

January 30th, 2021, 5:29 pm

They ask investors what they are willing to pay for them. That’s kind of what syndicate desks do. Hedging such positions may be a little trickier, so you don’t want to hold a lot of such paper unless you actually want the exposure, but it also doesn’t seem crazy to assume a relatively high correlation among various very long rates.
 
User avatar
willsmith
Posts: 2
Joined: January 14th, 2008, 11:59 pm

Re: Ultra Long Bond

October 6th, 2021, 2:33 pm

Assume a flat yield curve beyond the last observed bonds, and price the bond off the curve.

If there were other issuers with ultra long bonds, you could build their yield curves and take the 30-100 slope, and argue why (or why not) your new issuer should have the same slope.