NWU Institutional Repository

Adapting the Macaulay duration for defaultable and option-embedded bonds

Loading...
Thumbnail Image

Date

Authors

Styger, Paul
Van Vuuren, Gary

Journal Title

Journal ISSN

Volume Title

Publisher

Faculty of Economic and Management Sciences, University of Pretoria.

Abstract

Most contemporary bonds have embedded options and all face the possibility of default. Both features introduce risk (the former market risk and the latter credit risk) by altering the quantity and timing of the promised cash flows. The Macaulay duration, although a popular risk tool, is increasingly unable to cope in this complex financial environment. While the Macaulay duration has undergone modifications before, a new theoretical framework is now introduced which augments its functionality while retaining its tractability. The approach – though still unable to isolate the effects of the two features – yields consistent results which agree well with empirical data.

Description

Keywords

Citation

STYGER, P. & VAN VUUREN, G. 2008. Adapting the Macaulay duration for defaultable and option-embedded bonds. South African journal of economic and management sciences, 11(2):172-189, Jun. [http://www.sajems.org/index.php/sajems/article/view/307/118]
STYGER, P. & VAN VUUREN, G. 2008. Adapting the Macaulay duration for defaultable and option-embedded bonds. South African journal of economic and management sciences, 11(2):172-189, Jun. [http://www.sajems.org/index.php/sajems/article/view/307/118]

Endorsement

Review

Supplemented By

Referenced By