Pricing of Fixed Income Security
|Course||Technology Economics and Management|
|Keywords||Treasury bond Corporate bond Junk bond Bond pricing Fixed-income security Term structure of interest rate|
The development and prosperity of bond market have a good effect on capital market and economic of one country. The government of China issued Treasury bonds again in 1981. Until now, there has been development on a massive scale of the bond market primarily in China. However, in contrast to euramerican countries, our country’s bond market need to be improved and perfected urgently in lots of side, such as auction mechanism and pricing method. It is very important and exigent of upbuilding effective auction mechanism and pricing method adapting to the situation of China. The paper is trying giving some contribution to the study of pricing method by comparing U. S. bond market with Chinese market.Chapter one is preface which introduces the background, significance of selection and structure of the paper. The second chapter, named Treasury bonds, explores evolvement of issue scale and selling mechanism in China. Then, it discusses U. S. Treasury bonds and points out the use for reference to China. In the others, it also introduces five kinds of Treasury bonds. Chapter 3, corporate bonds, mainly explores classification and issue procedure of corporate bonds. Then it compares corporate bonds with Treasury bonds and expound detailed the rating of corporate bonds. In the end, it studies emphatically junk bonds which include background, development, appliance and dispute. In chapter 4, it mainly explores groundwork of bond pricing, including bond price volatility and term structure of interest rate. After that, we discuss specially three kinds of term structure model. Chapter 5 is the core of this paper. It includes mainly studying on bond pricing and demonstration of Treasury bonds market in China. There are three types of pricing method such as pricing based on yield to maturity, cash flow pricing and callable bond pricing based on the model of Black-Derman-Toy. At last, lots of Treasury bonds are selected as example from Shanghai Stock Exchange. We construct linear model of interest rate term structure by using regression and validate pricing method of China.