Dear all,How to compute the Net Asset Value (NAV) for a Fixed Income ETF?In case of an equity ETF the NAV is computed as NAV=((∑Shares∙Closing Price)∙FX rate + Cash - Liabilities) / (Number of ETF shares)What happens in case of a Fixed Income ETF?

why would it be different for a fixed income fund ?

it's not different, but the calculation can be much more imprecise. a very small % of the bonds underlying a FI ETF actually trade on a given day, most are priced via matrix/assumptions, so there is a lot of room for, well, fudging

I have also seen in some book that for Equity ETFs the underlying share prices participate in the price discovery of the Equity ETF price (via this formula NAV=((∑Shares∙Closing Price)∙FX rate + Cash - Liabilities) / (Number of ETF shares) )For Fixed Income on the other hand different pricing houses may deliver slightly different prices for the same underlying bonds. And actually the prices of the Fixed Income ETFs sometimes participate in the price discovery of the underlying bonds... I'm just trying to comprehend these type of details.Also, I've seen the Equity ETFs formula NAV=((∑Shares∙Closing Price)∙FX rate + Cash - Liabilities) / (Number of ETF shares) all over the place, while the Fixed Income counterpart is just not discussed for some reason. Do you perhaps now where I can look up the formula for the Fixed Income ETFs NAV?

Btw, is there an easy-to-digest reference about the matrix method for bond pricing? Thanks a lot.

the formula for a FI ETF is the same - at the end of the day, all an ETF is is a basket of securities that you can trade as a block (the ETF). the NAV formula you cited will hold for any basket of securities, including an ETF, irrespective of the components of that basket. the more-tricky thing for a FI ETF is that the "closing price" isn't as "pure" as an equity ETF since there is no exchange that bonds trade on (thus no way to have a true "closing price", just the prevailing bid/offer at some pre-specified time like 3pm). a quick google on matrix bond pricing yields a couple of reasonable results, a very simple version here http://capitalmanagementgrp.com/new/cap ... ricing.pdf and this appears to be a more full but easy to follow analysis http://www.rinfinance.com/agenda/2012/t ... on.pdfhope it helps