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# Category: Level III Fixed Income

## Yield Curve Strategies – Dynamic Yield Curve

Making Money with Bonds In the article on yield curve strategies in general, I mentioned the two broad ways to make money with bonds: Coupons (more generally, to incorporate synthetic strategies using, for example, swaps: interest payments) Price changes The curriculum breaks down the expected return on a bond in this manner: \begin{align}E\left(R\right) &≈ Coupon\…

## Yield Curve Strategies – Static Yield Curve

Making Money with Bonds In the article on yield curve strategies in general, I mentioned the two broad ways to make money with bonds: Coupons (more generally, to incorporate synthetic strategies using, for example, swaps: interest payments) Price changes The curriculum breaks down the expected return on a bond in this manner: \begin{align}E\left(R\right) &≈ Coupon\…

## Yield Curve Strategies – General

In 2019, CFA Institute revised all of their Level III Fixed Income readings, and, in particular, came up with a 10-page blue box example that was absurdly complex, which I simplified here. That example’s gone. Fortunately. (In point of fact, I’m sorry that the idea is gone from the curriculum, because it was interesting and…

## Inter-Market Curve Positioning

As a gift to the candidates studying for the Level III exam in 2019, CFA Institute replaced the existing Level III Fixed Income readings with new Fixed Income readings. Amongst the new readings was one entitled Yield Curve Strategies, and included in that reading was a section on Inter-Market Curve Strategies, including, in particular, inter-market…

## Contingent Immunization

The idea of immunization is fairly straightforward: you have a known set of liabilities due at known future dates, and you want to create a portfolio that will fund those liabilities with a minimum of risk, at a reasonable price. Two types of immunization are discussed in the CFA curriculum: classical immunization and contingent immunization. …

## Classical Immunization

The idea of immunization is fairly straightforward: you have a known set of liabilities due at known future dates, and you want to create a portfolio that will fund those liabilities with a minimum of risk, at a reasonable price. Two types of immunization are discussed in the CFA curriculum: classical immunization and contingent immunization. …

## Option-Adjusted Spread (OAS)

Option-adjusted spread (OAS) is a yield spread (i.e., an interest rate) that is added to the (1-period forward) interest rate at each node in a binomial tree; specifically, it is the spread that when added to the discount rates results in the tree giving the current market price for a particular bond, after accounting for…