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- 4/13/15
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Hi All,
I am currently encountering a mathematical issue at work. It may sound very easy to some with quants background but here it is:
I must research and develop ways to broadly price (50bps accuracy) 50 North-American private corporate bonds that are somewhat illiquid (priced about 2-3 times a week).
Here’s my failed attempt:I tried to use the yield change of the bond’s benchmark & the duration of the private bond to estimate the period price change and add to the previous value to get an estimated price.
My issue is that a typical yield change of a benchmark is not at all similar to that of a private bond and so I would need to put something that makes sense in my calculation so that it converts the benchmark yield to the probable yield change of the actual security. Then, using that estimated period yield change, the duration & convexity of the private bond, estimate the price the bond (?)
Would some sort of a matrix pricing be a good idea? I pulled of a credit ? sector spread matrix but it only adds to the benchmark, it does not seem to compensate for the larger yield change that risker bonds seem to have when its benchmark moves.
Lastly, I have MAX 50bps threshold for price accuracy – although I really welcome your input even if you are not sure if your method would meet that criterion.
Thanks a lot for your input!
I am currently encountering a mathematical issue at work. It may sound very easy to some with quants background but here it is:
I must research and develop ways to broadly price (50bps accuracy) 50 North-American private corporate bonds that are somewhat illiquid (priced about 2-3 times a week).
Here’s my failed attempt:I tried to use the yield change of the bond’s benchmark & the duration of the private bond to estimate the period price change and add to the previous value to get an estimated price.
My issue is that a typical yield change of a benchmark is not at all similar to that of a private bond and so I would need to put something that makes sense in my calculation so that it converts the benchmark yield to the probable yield change of the actual security. Then, using that estimated period yield change, the duration & convexity of the private bond, estimate the price the bond (?)
Would some sort of a matrix pricing be a good idea? I pulled of a credit ? sector spread matrix but it only adds to the benchmark, it does not seem to compensate for the larger yield change that risker bonds seem to have when its benchmark moves.
Lastly, I have MAX 50bps threshold for price accuracy – although I really welcome your input even if you are not sure if your method would meet that criterion.
Thanks a lot for your input!