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  • How Do We Find The Price of Our Bond?

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    kanye
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    To find the price of a bond, replicate the bond's cash flow stream using a portfolio of zero-coupon bonds with the same cash flows. The price of the bond must equal the price of this replicating portfolio to avoid arbitrage opportunities. The replicating portfolio exactly matches the bond's cash flows at each date to determine the fair price.

    Original Description:

    Lecture 1(1).26

    Original Title

    Lecture 1(1).26

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    To find the price of a bond, replicate the bond's cash flow stream using a portfolio of zero-coupon bonds with the same cash flows. The price of the bond must equal the price of this replicating portfolio to avoid arbitrage opportunities. The replicating portfolio exactly matches the bond's cash flows at each date to determine the fair price.

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    © All Rights Reserved
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    6 views1 page

    How Do We Find The Price of Our Bond?

    Uploaded by

    kanye
    To find the price of a bond, replicate the bond's cash flow stream using a portfolio of zero-coupon bonds with the same cash flows. The price of the bond must equal the price of this replicating portfolio to avoid arbitrage opportunities. The replicating portfolio exactly matches the bond's cash flows at each date to determine the fair price.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    of 1

    How do we find the price of our bond?

    -P

    5
    100

    Strategy: Replicate the entire CF-stream we


    want to price
    For there to be no arbitrage the price of the
    CF-stream must be the same as the price of
    the replication

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