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Study Session 13: Fixed Income: Topics in Fixed Income Analysis

Need help ** Calculate the arbitrage free forward rate

Hi Can some one help me on the below,

thanks in advance!!!!

Ansh Agri exports agro products to Walmart,usa for 15000 usd on Jan 10. Walmart will make the payment on mar 10. The dollar price on jan 10 was rs. 72.15. concerned about currency risk, it enters into a Non deliverable forward with Axis bank, where the forward rate is fixed at rs 74.55 per dollar with the expiry of the contract on mar 10. If on mar 10 the spot closed at ₹.70.95, who is going to gain from the transaction and what will be the settlement.

Credit analysis model of level II


could you kindly tell, if there is any math question ever came from credit analysis model of Fixed Income ( i meant the math question other than the only one math example given in the book)

what kinds of question may come from structural models and reduced formed models?

do we have to memorize the long formulas given in the chapters?

Thank you


Maturity matching buy and hold strategy

Can someone please explain what is maturity matching buy and hold strategy in context of active portfolio management of short term bonds …

CDS spread

Hi guys, just a quick question because it seems that I got confused. 

If you have a bond in your portfolio and you want to hedge for credit risk, are you buying or selling the CDS? 

Winters AM - Binomial IR tree question

Winters AM is a fixed income management firm that invests in a wide variety of debt instruments. Lauren Winters, CFA is focusing on bonds with embedded optionality. She builds the following binomial IR tree based on 10% vol. Her goal is to value a new annual pay 4.5% bond, callable at 100.5 and maturing in 3 years with a par value of $100.

Q43. The value of the bond is closest to:

a) 102.26

b) 102.76

c) 102.82

can someone please talk me through this one as I am lost! thanks

Callable bonds


Can anyone help me understand why the price of the callable bond is capped by the price of the call option if it is near the exercise date.
Thank you!

CDS - Recovery Rate/Payout Rate

Hello, I am confused by an example given in Book 39 (CDS - the last Fixed Income Book). They say if a CDS defaults, the buyer will receive 1-recovery rate * notional amt. Infact, they give 1 or 2 examples after this is explained. But in Section 3.1, they give another example:

Key rate duration

Does anybody understand why a bond trading at a premium has a positive key rate duration while a discount bond has a negative key rate duration?

Z spread and Option Adjusted Spread

We have 3 Bonds:

                     Bond A    Bond B   Bond C

Z-spread        130          150         135

OAS               140          125         135

Why Bond A is more likely to have put option embedded than Bond B?

Is Z-spread = OAS - Call Option, and Z-spread = OAS + Put Option.

The higher the OAS, the lower the price of Bond, isn’t it?

Credit Analysis Models - CVA Calculation

Hi guys, 

I’m going through EOCs on the new Credit Analysis Models chapter. Calculating the CVA and fair value of a bond is blowing my mind a little. 

Has anyone got any useful tips they can share for calculating the value of CVA to deduct from the calculated price? LGD and POD calcs are relatively new to me. The first couple of EOC questions need a lot of calculations so I’m wondering if they’ll even test this, but given its a new reading I don’t want to take the chance.

Thanks all!