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12 Cards in this Set
- Front
- Back
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Macaulay's duration |
a measure of the effective maturity of a bond, defined as the weighted average of the times until each payment, with weights proportional to the present value of the payment |
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Modified duration |
measures interest rate sensitivity of bond |
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immunization |
a strategy to shield net worth from interest rate movements |
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cash flow matching |
matching cash flows from a fixed-income portfolio with those of an obligation |
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dedication strategy |
refers to multi period cash flow matching once and for all approach to eliminating interest rate risk there is no need for rebalancing can NOT cash flow match for pension fund |
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convexity |
the curvature of the price-yield relationship of a bond more important as a practical matter when potential interest rate changes are large |
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substitution swap |
exchange of one bond for a bond with similar attributes but more attractively priced |
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intermarket spread swap |
switching from one segment of the bond market to another |
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rate anticipation swap |
a switch made in response to forecasts of interest rate changes |
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pure yield pickup swap |
moving to higher yield bonds, usually with longer maturities exchange of a shorter-duration bond for a longer-duration bond |
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tax swap |
swapping two similar bonds to receive a tax benefit |
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horizon analysis |
forecast of bond returns based largely on a prediction of the yield curve at the end of the investment horizon |
