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Yield Curves - 2 Days
The term “yield curves” are often bandied about but usually only those who work with them understand what they are and how they are used. In a number of countries there is an “official” yield curve off which everyone works. In South Africa, the Bond Exchange is attempting to institute a similar policy, but without much success. Each bank has its own proprietary curve – thereby resulting in pricing and valuation differences.
Topics to be covered include:
- What is a yield curve – a very brief description of the make up of a yield curve.
- Types of yield curves – par curves v zero coupons v forward/forwards
- Yield curve shapes and a bit about the various yield curve theories.
- All of the above serve as an introduction to the real nitty gritty.
- How to construct a yield curve – here I can show how to construct either a zero coupon yield curve or a forward/ forward curve, which is a bit mathematical but we don’t need to go into too much detail.
- How to use yield curves in the valuation process.
- Duration and convexity and how they impact upon the valuation of assets when rates move – once again a bit mathematical but of extreme importance in explaining how valuations change over time as well as due to changes in rates
- Some yield curve “plays” – covering jargon such as straddles etc
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