Adapting the Macaulay duration for defaultable and option-embedded bonds

Adapting the Macaulay duration for defaultable and option-embedded bonds

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...

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Bibliographic Details
Main Authors: Gary Wayne van Vuuren, Paul Styger
Format: Article
Language:English
Published: AOSIS 2011-09-01
Series:South African Journal of Economic and Management Sciences
Online Access:https://sajems.org/index.php/sajems/article/view/307
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spelling doaj-e3dc9153298143fc957e3e213b1863452020-11-25T02:24:24ZengAOSISSouth African Journal of Economic and Management Sciences1015-88122222-34362011-09-0111217218910.4102/sajems.v11i2.307111Adapting the Macaulay duration for defaultable and option-embedded bondsGary Wayne van Vuuren0Paul Styger1North West University & Fitch Ratings, UKNorth West UniversityMost 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.https://sajems.org/index.php/sajems/article/view/307
collection DOAJ
language English
format Article
sources DOAJ
author Gary Wayne van Vuuren
Paul Styger
spellingShingle Gary Wayne van Vuuren
Paul Styger
Adapting the Macaulay duration for defaultable and option-embedded bonds
South African Journal of Economic and Management Sciences
author_facet Gary Wayne van Vuuren
Paul Styger
author_sort Gary Wayne van Vuuren
title Adapting the Macaulay duration for defaultable and option-embedded bonds
title_short Adapting the Macaulay duration for defaultable and option-embedded bonds
title_full Adapting the Macaulay duration for defaultable and option-embedded bonds
title_fullStr Adapting the Macaulay duration for defaultable and option-embedded bonds
title_full_unstemmed Adapting the Macaulay duration for defaultable and option-embedded bonds
title_sort adapting the macaulay duration for defaultable and option-embedded bonds
publisher AOSIS
series South African Journal of Economic and Management Sciences
issn 1015-8812
2222-3436
publishDate 2011-09-01
description 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.
url https://sajems.org/index.php/sajems/article/view/307
work_keys_str_mv AT garywaynevanvuuren adaptingthemacaulaydurationfordefaultableandoptionembeddedbonds
AT paulstyger adaptingthemacaulaydurationfordefaultableandoptionembeddedbonds
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