Coupons anniversary dates

We are assuming the bond is valued on its coupon anniversary dates. 

To illustrate the various yield to call measures, consider a callable bond with a 5.75% coupon issued by DZ Bank. The Security Description screen from Bloomberg is presented in Exhibit 3.12. The bond matures on 10 April 2012 and is callable on coupon anniversary dates until maturity at a call price of 100. Exhibit 3.13 present the Yields to Call screen. Using a settlement date of 22 July 2003, the various yield to call measures are presented. 

For ease of exposition, assume that we value the security on its coupon anniversary date. Let s consider two paths that 6-month LIBOR can take in the next three years. In the first path, we assume that 6-month LIBOR will remain unchanged at say, 5.25%. In the second path, we assume that 6-month LIBOR will increase by 10 basis points each period for the next three years (i.e., 5.25%, 5.35%, 5.45%, 5.55%, 5.65%, 5.75%). Finally, we will value the floater assuming three different values (in basis points) for the discount margin 0, 50 and 100. The values for the floaters associated with each discount margin and under each interest rate path are given in Exhibit 3.17. 

More specifically, this is the formula for the modified duration of a bond on a coupon anniversary date. 

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See also in sourсe #XX -- [ , , ]

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