Bitcoin?! Then economy and the code…metaphysically or metaphysiologically together?

Eurodollar deposit

  • Eurodollar means deposits in banks out of US which are not under the jurisdiction of the Federal Reserve
  • The Federal Open Market Comittee sets a target level for the fed funds rate, which is its primary tool for implementing monetary policy

Money Market instruments: Treasury Bills, Federal Funds, Repurchase Agreements, Negotiable Certificates of Deposit, Commercial Paper, Bankers’s Acceptance, Eurodollars deposit.

Fixed Income Securities:

  • Issuer:
    • Government:
      • Central:
        • Bill (<1 yr)
        • Notes (1-10 years)
        • Bonds (>10)
      • Local/Municipal
        • Revenue Bonds
          • Go
    • Corporate
    • International
      • Foreign Bonds
        • Yankee, Bull dog
      • Euro bonds
  • Priority
    • Subordinate
  • Coupon Rate
    • Zero Cupon
    • Fixed
    • Floating
      • Floater
      • Inverse Floater
    • Step up
  • Redemption
    • Bullet
    • With options
      • Call/put
    • Sinking Fund Provision
  • Priority of Issue Time
    • On the Run
    • Off the Run
  • Rating
    • Investment Grade
    • Junk Bonds
  • Non-Bullet
    • STRIPS
    • Inflation Indexed

Bond terms:

Face Value is commonly referred to the amount paid to a bondholder at the maturity date, given the issuer does not default.

Coupon Rate is the interest rate stated on a bond when it is issued. The coupon is typically paid semiannually

Maturity is the date on which the bond principal amount becomes due. The maternity date tells the investor when he will get his principal back and for how long he will receive interest payments.

Coupon Frequency is the frequency at which the issuer pays the interest (coupon) as per determined schedule. This frequency in case of bonds is normally semiannual.

Issuer is the identity (company or government) who borrows an amount of money (issuing the bond) and pays interest.

Redemption price is the price at which a bond or a preferred stock can be redeemed by the issuer. This price is set at the time the security is issued.

Identification code

  • ISIN is a code that uniquely identifies a specific securities issue. The organization that allocates ISINs in any particular country is the country’s respective National Numbering Agency (NNA). All internationally traded securities issuers use this numbering scheme,which is the accepted standard by  all countries.
  • CUSIP is a identification number assigned to all stocks and registered bonds. The Committee on Uniform Securities Identification Procedures (CUSIP) oversees the entire CUSIP system. The system is issued in the US and Canada
  • Rating is a grade given to bonds that indicate their credit quality. Private independent rating services such as Standard & Poor’s, Moody’s and Fitch provide these evaluations of a bond issuer’s financial strength, or it is the ability to pay a bond’s principal and interest in a timely fashion. Credit risk is the most important source of risk for owners of bonds. As a result, various rating agencies (S&P, Moody’s, Fitch and Dominon Bond) assign grades to indicate the credit quality of various bond issues.

 

Moody’s Rating:

Investment Grade Papaers: Aa1,Aa2, Aa3 (High Quality), A1,A2,A3 (Upper Medium Quality), Baa1, Baa2, Baa3 (Lower Medium Quality), Junk Bonds (Ba1, Ba2, Ba3, B1,B2,B3, Caa,Ca,C)

S&P’s Rating

Investment Grade Papers: AA+, AA, AA- (High Quality), A+,A,A- (Upper Medium Quality), BBB+, BBB, BBB- (Lower Medium Quality), Junk Bonds BB+, BB, BB-, B+, B, B-, CCC+, CCC, CCC-, CC, C,D (Low Grade)

Day count conventions. Three day count conventions are commonly used:

-Actual/actal – US Treasury Bonds

-30/360 – US corporate and munis

– Actual / 360 -US T Bills and Money Market instruments

Yield is the income return on a investment referring to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investments’s cost. its current market value or ots face value. Bonds have four your yields:

  • Current Yield is the bond interest rate as a percentage of the current price of the bond. The current yield on a bond is simply the annual interest payment divided by its current price.

CY = (CR x FV) / P0  (CY – Current Yield, CR – Coupon Rate, FV – Face Value, P – Price)

  • Yield to maturity is the rate of return that will be earned on the bond if it is purchased at the current market price, held to maturity, and if all of the remaining coupons are reinvested at the same rate. This is the IRR of the bond.
  • Yield to Call is exactly the same as the YTM, except that it assumes that the bond will be called at the next call date.

Duration: It is a measure of the interest rate sensitivity of a bond. It refers to average tenure or weighted average maturity of the bond. It is the relationship between price and yield, which is expressed as duration in years. Duration / 1 + yield will give the modified duration. % change in price as a result of % change result in YTM = (-)mod. Duration * % change in YTM. Mod.Duration is a measure of interest rate sensitivity of the bond, all else is equal. Mod. Duration * .01 (100 bps) * current trading price will give change in price in dollar terms for a 1% change in yield (DV01)

PV01 = DV01 /100, that is expressed in terms of 1 basis point

Convexity. Duration accurately measures the interest rate sensivity of a bond for small changes in the yield, generally less than 1%. But duration being a first derivative of the price-yield function of the bond, loses its ability to accurately measure derivative of the price -yield function, Convexity is used.

Bond pricing.

The price of a financial instrument is equal to the present value of the expected cash flow.The interest rate or discount rate used to compute the present value depends on comparable securities in the market.

Pricing a noncallable / nonputable bond involves two steps – determining cash flow as and determining the required yield.

Cash flows are the periodic coupon interest payment to the maturity date of a bond and the par (maturity) value at maturity of the bond.

Required yield is determined by investigating the yield offered on comparable bonds in the market.

The price of a bond is equal to the present value of the cash flows, which is determined by adding the present value of the semi-annual coupon payments and the present value of the par or maturity value

Mortage-backed securities. A mortage-backed security (MBS) is an instrument whose cash flows depends on the cash flows of an underlying pool of mortgages. There are three types of MBS.

  1. Mortgage pass-through security (or simply pass-through) is created when one or more holders of mortgages form a collection (pool) of mortgages and sells shares or participation certificates in the pool. The cash flows of pass-through depends on the cash flow of underlying mortgages, consists of monthly mortgage payments representing interest, the scheduled repayment of principal, and any pre-payments. Payments are made to security holders each month. There are three types of pass-through securities, guaranteed  by:
    1. Government National Mortgage Association (̈́”Ginnie Mae”)
    2. Federal Home Loan Mortgage Association (“Freddie Mac”)
    3. Federal National Mortgage Association (“Fannie Mae”)
    4. The securities associated with the above agencies are known as “agency pass-though securities”
  2. Collateralized Mortgage Obligation (CMO) is a security backed by a pool of pass-troughs or a pool of mortgage loans. CMOs are structured so that there are several classes of bondholders with varying maturities. The bond classes are called “tranches”. By redirecting the cash flow from the underlying collateral, issues have created classes of bonds that have different degrees of prepayment and interest rate risk and thereby more attractive to institutional investors to satisfy asset or liability objectives than a pass though. The various types of bonds include sequential-pay bonds, planned amortization class (PAC) bonds, accrual (or Z) bonds, floating rate bonds, inverse floating-rate bonds, and very accurately determined maturity (VADM) bonds.
  3. Stripped Mortgage-Backed Securities are created by altering the distribution of principal and interest from a pro data distribution to an unequal distribution. There are two types of Stripped MBSs:
    1. Synthetic-coupon pass-throughs: The unequal distribution of coupon and principal resulted in a synthetic coupon rate that is different from the underlying collateral
    2. Interest-only / principal-only securities: Issued with all the interest is allocated to one class (interest-only or IO) and all the principal to the other class (the principal-only or PO). The IO class receives no principal payments, and the PO class receives no interest.
    3. Asset-backed securities are securities collateralized by assets that are not mortgage loans. These are structured as pass-throughs and as structures with multiple bond classes called pay-throughs, which are similar to CMOs. Three common types of asset-backed securities are those backed by credit card receivables, home equity loans, and automobile loans, and foreign bank loans. CDO are classified as either cash CDOs. A cash CDO is backed by a pool of cash market debt instruments. A synthetic CDO is a CDO where the investor has economic exposure to a pool of debt instrument, but this exposure is realized through credit derivative instruments rather than the purchase of the cash market instruments.

So, bitcoin how can be merged, just because exists an exchange option? I would like to get coins back for some old Microsoft Software…

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Quiero compartir mis experiencias y mis humildes conocimientos
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