Friday, April 13, 2012
An easy-to-use tool to calculate a bond fair pricing, its YTM or get a risk indicator (CDS spread) for any issuer.
The application is structured into two parts.
The first part of the application calculates the "fair pricing" of a bond given a few basic inputs, like CDS spread (issuer risk), coupon, coupon frequency and maturity value and date.
The "fair pricing" is a relatively complex calculation that combines the perceived risk of the issuer with the assumed (and updated) risk-free asset (AAA government bonds for European issuers or Treasury bonds for US Companies), and resulting in a price indication, that, however, does not take liquidity into consideration.
The second part of the application calculates the CDS spread based on inputs like coupon, coupon frequency, issuer price, market price and maturity date and value.
Knowing the updated CDS spread for a specific issuer may be useful as it allows an immediate comparison with other issuers (both in the same sector or in different sectors), or even sovereign issuers – which can also be calculated with this tool.
- Calculate a specific bond’s fair pricing based on a few simple inputs.
- Estimate the up-to-date market default risk (CDS) associated with a bond issuer, based on simple inputs related to one (or more) of its bonds.
- Accurate YTM available in both calculations.
Available at this link.