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Excel Worksheet Descriptions

Calculations and Trade Setup Files


Following is a list of the calculations and worksheets available in the Excel
file to accompany Interest Rate Markets: A Practical Approach to Fixed Income,
along with a brief description. Each table represents a calculation that addresses a
specific concept discussed in the book. These calculations are meant to be an
adjunct to the explanations in the book and use simple Excel-based formulas rather
than elaborate constructs to arrive at the answer. The formulas in the cells of the
files can offer further clarity to the discussions of the topics in the book.
Regressions.xls
Title: Regression
This file shows the basic setup of a regression in Excel, including the
functions that can be used to determine the coefficient, and displays an
example of a best-fit trend line on a chart.
ForwardRate.xls
Title: Forward Rate Calculation
This file has a basic forward rate calculation given interest rates
between two different dates using the indifference principle highlighted
in Chapter 2.
CurveTrades.xls
Title: Curve Trade Setup
This file shows the setup of a yield curve trade, which involves
buying one maturity debt and selling another maturity debt. Given a
base amount on one of the securities, the sheet demonstrates the
calculation of the amount of the second security.
ButterflyTrades.xls
Title: Butterfly Trade Setup
This file shows the setup of a butterfly trade, which involves buying
(selling) one maturity and selling (buying) two securities around it. The
trade is meant to express a view on the curvature of the yield curve. The
sheet shows the calculations of notionals of the short- and long-maturity
securities given a base notional of the middle (body) security.
Carry.xls
Title: Carry Calculator
This file shows the basic calculation of the carry (net income) from
owning a bond. The start and end dates for the carry period should be
between the coupon period start and end. For carry calculation spanning
across coupon dates, the calculation can be split up between the coupon
payment dates. The sheet calculates the carry in both price and yield
terms, with the duration as an input.
CarryToRisk.xls
Title: Carry to Risk
This file shows the calculation of carry (i.e., rolldown) for a
Eurodollar curve and the calculation of the carry-to-risk ratio. The
standard deviations are input daily standard deviations and the ratio is
annualized.
SimpleConversionFactorCalc.xls
Title: Treasury Futures Conversion Factor Calculation
This file calculates the conversion factor of a futures contract using a
combination of rounding and the price/yield function in Excel. The price
of a rounded maturity bond with 6% yield is calculated to arrive at the
futures conversion factor.
HedgingWithBonds.xls
Title: Hedging Interest Rate Risk Using Treasury Bonds
This file shows the process of hedging the interest rate risk in a
fixed-income security using Treasury bonds. Here the example assumes
an off-the-run Treasury being hedged with an on-the-run one. The price,
duration, DV01, and notionals for the hedge are all calculated.
Furthermore, the sheet shows the process of using a regression to
determine the yield beta and calculate an adjusted hedge ratio. If either
security is changed, the historical data for that security would need to be
inserted to determine a new yield beta.
HedgingWithFutures.xls
Title: Hedging Using Treasury Futures
Similar to the file demonstrating hedging with bonds, this file
describes the method of calculating a hedge ratio using Treasury futures.
Unlike with bonds, there are various ways to calculate DV01. The sheet
shows both a simple, rule-of-thumb hedge ratio using the DV01 of the
cheapest-to-deliver (CTD) bond as well as a hedge ratio using an
empirical regression. As with the bonds file, the data is a sample of the
CTD yield series for a particular futures contract, but any changes
would require insertion of new data. The calculation of the more
elaborate option-adjusted duration is not shown.
SwapSpread.xls
Title: Swap Spread Setup
This file shows the setup for a swap spread trade that involves
transacting in a Treasury bond and entering the opposite transaction in a
swap.
FuturesBasketWorksheet.xls
Title: Futures Basket Worksheet
This file shows the process for calculating various attributes of a
deliverable basket for a futures contract. For each bond, the basic
attributes, such as maturity, duration, and carry, are calculated as well as
the basis net of carry (BNOC), which leads to the cheapest to deliver.
Different scenarios are shown using the calculations as in Chapter 11.
Black-Scholes.xls
Title: Black-Scholes Options Pricer
The sheet shows the basic calculation of an option price using the
standard Black-Scholes formula, which assumes a lognormal
distribution for the underlying security.
Bachelier.xls
Title: Bachelier Options Pricer
The sheet shows the calculation of an option price using the
Bachelier pricing formula, which is used for an underlying normal
distribution. Bachelier-type pricers are more common for interest rates
where the underlying is closer to a normal distribution than a lognormal
one.

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