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9 Cards in this Set
- Front
- Back
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Absolute Yield Spread (Formula)
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Yield on Bond A – Yield on Bond B
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Relative Yield Spread (Formula)
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Yield on bond A -Yield on Bond B/ Yield on Bond B
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Yield Ratio (Formula)
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Yield on Bond A / Yield on Bond B
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Z-spread (Definition)
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This measures the spread the investor would capture over the entire Treasury spot- rate curve if the bond was held to maturity.
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Option-Adjusted Spread (OAS) (Definition)
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This takes the dollar difference between the fair price and the market price and converts it into a yield measure.
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Z-Spread and OAS relationship (Formula)
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Z-spread = OAS + option cost
where: OAS=Option-Adjusted Spread |
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Forward/Spot Rate Relationship (Formula)
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tFm =[ (1 + Zm+t)m+t / (1 + Zm)m] 1/t - 1
ex 3f5 =[(1.02125)/ (1.0175)5]1/3 –1 = .027916 where: m= |
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Type 2 Error Probability (Formula)
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1-P(Type 2 Error)
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Trading Rules
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-10 top grade bonds/dow jones (confidence index)
-T-Bill vs Euro-Dollar (LIBOR) -Short-Sales by Specialist -Debit Balances by Brokerage |
