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Tools to analyze interest rates and value bonds

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  • Tim Schmidt

    (Discover Financial Services)

Abstract

Bond markets contain a wealth of information about investor preferences and expectations. However, extracting such information from market interest rates can be computationally burdensome. I introduce a suite of new Stata commands to aid finance professionals and researchers in using Stata to analyze the term structure of interest rates and value bonds. The genspot command uses a bootstrap methodology to construct a spot rate curve from a yield curve of market interest rates under a no-arbitrage assumption. The genfwd command generates a forward rate curve from a spot rate curve, allowing researchers to infer market participants’ expectations of future interest rates. Finally, the pricebond command uses forward rates to value a bond with user-specified terms.

Suggested Citation

  • Tim Schmidt, 2019. "Tools to analyze interest rates and value bonds," 2019 Stata Conference 21, Stata Users Group.
    • Handle: RePEc:boc:scon19:21
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    File URL: http://fmwww.bc.edu/repec/scon2019/chicago19_Schmidt.pdf
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