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Bond Math and Pricing
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Module 8
Interest Rate Risk: Macaulay and Modified Duration
1
Understanding Macaulay Duration
Define Macaulay Duration as the weighted-average maturity of a bond's cash flows.
2
Modified Duration: A Measure of Interest Rate Sensitivity
Derive Modified Duration as the first derivative of the price-yield function, establishing it as a measure of interest rate sensitivity.
3
Approximating Bond Price Changes with Modified Duration
Use Modified Duration to approximate the percentage price change of a bond for a small change in yield.
4
Calculating Bond Duration in Python
Implement Macaulay and Modified Duration calculations in Python for a given bond.
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Pricing Inverse Floating Rate Notes
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Second-Order Risk: Convexity