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• Matlab is recommended to carry out your analysis but you are free to chose a different one.
The executable codes must be submitted together with the solution.
Download US Treasury Bills, Notes, and Bonds data: prices, coupon rates and maturities
from Bloomberg on a day of your choice.
Construct the yield curve using
– Bootstrapping method
– Nelson-Siegel method
– Vasicek model
Graph these curves on the same plot so you can compare three methods. A discussion on
the extracted curves that relates to the financial news on the day of your choice would be a
plus. You must construct your curves with the bond prices.
A bank is about to deliver one payment of 1 million in one and half year and the other of
1 million in three years. To be immune to duration and convexity risks, it uses three bonds
for the hedging purpose. Bond A is a three-year zero coupon bond. Bond B is a fouryear bond with the semin-annual coupon rate 4%. Bond C is a two year and nine months
floating rate bond with the quarterly coupon payment. The coupon for Bond C was just
paid and the current 3-month floating rate is 8%. The face value of each bond is 100. You
are called in to use one of three curves above and help the bank build the immunization
bond portfolio. You are required to conduct the comparative/sensitive analysis.
