wilmott.com

Hi,The question might be simple but I didn't find any reference about it on Google:if I want to compute the bond daily return should it be: [(Accrued interest + clean price (day t) - clean price(day t-1))]/clean price (day t-1)?mainly I am not sure whether I should divide by clean or dirty price . I feel also the numerator is wrong because at the day of the coupon payment the accrued interest is zero but the investor has received a coupon payment. Can anyone help in this regard?many thanks

You should put accrued interest in the denominator as well

Either you use clean prices or dirty prices, but you can't mix it.So the real question is : should I use clean prices or dirty prices ? My guess would be : it depends on what you want to study. If you want to study the risk factors underlying your bond prices, then you should use clean prices.