Analytics of duration and convexity for bonds with embedded options: the case of convertibles

Article Abstract:

A model for assessing the effects of duration and convexity on convertible bonds is presented. Earlier studies on duration and convexity have focused on callable bonds. The greater positive convexity ofconvertible bonds makes it imperative to adopt a model that would adequately addressed the different effects of duration and convexity on pure and convertible bonds. The model shows that the more valuable the call option is, the greater the duration of a convertible bond and the less valuable the call option is, the more similar the duration and convexity between pure and convetible bonds.

Evaluation, Bonds, Bonds (Securities), Convertible bonds

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Stock index futures hedging: hedge ratio estimation, duration effects, expiration effects and hedge ratio stability

Article Abstract:

The hedging effectiveness for the Financial Times Stock Exchange 100 Stock Index futures contract from 1984 to 1992 is examined. The study performs estimations using OLD, an ECM and GARCH to evaluate the econometric estimations to be used in the estimation of minimum variance hedge ratios. Results indicate that hedge ratios and hedging effectiveness improves as hedge duration is extended, hedge ratios drift toward unity as expiration nears, and hedge ratios remain stable as they vary over time.

Hedging (Finance), Stock index futures, Financial Times Stock Exchange 100 Index (Index)

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A new stochastic duration based on the Vasicek and CIR term structure theories

Article Abstract:

The Vasicek and CIR term structure theories were used for a new stochastic duration.

Interest Rates, Usage, Stochastic analysis

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