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A Better Alternative to Conventional Bond in the Context of Risk Management

Gor Khachatryan

European Research Studies Journal, 2019, vol. XXII, issue 1, 209-220

Abstract: Under the assumption of flat spot curve, we define functional relationship between conventional and serial bonds’ prices, when the bonds’ parameters (par value, coupon rate and number of periods) are equal. Furthermore, we conduct a thorough study of joint behavior of conventional and serial bonds’ durations, which suggests that if spot curve is flat, and the bonds’ parameters (coupon rate and number of periods) are equal, then conventional bond’s durations (Macaulay and modified) significantly exceed serial bond’s durations. That is, all things being equal, conventional bond has considerably greater weighted average time until repayment and is much more exposed to interest rate risk than serial bond.

Keywords: Conventional bond; serial bond; bond price; Macaulay duration; modified duration. (search for similar items in EconPapers)
JEL-codes: C00 C61 G12 G32 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:ers:journl:v:xxii:y:2019:i:1:p:209-220