Fixed-Income Toolbox 1.8

Derivatives Securities

The Fixed-Income Toolbox provides tools based on Black's option functions for working with fixed-income derivatives. These tools let you calculate swap price by computing par yields that equate the floating-rate side of a swap to the fixed-rate side. You can set the present value of the fixed side to the present value of the floating side without aligning and comparing fixed and floating periods.

The duration-hedging capability in the toolbox lets you hedge a portfolio and address interest-rate risk exposure with a swap arrangement.

The Fixed-Income Toolbox lets you use binomial and trinomial trees to value convertible bonds. The value of the convertible bond is determined by the uncertainty of the relative stock.

The Fixed-Income Toolbox uses the binomial and trinomial tree approach to value convertible bonds. The value of the convertible bond is determined by the uncertainty of the relative stock. The figure on the left shows that the bond “floor” of the convertible when share prices are very low.