Superseding Newton with a superior bond yield algorithm

Christopher Deeley

Research output: Book chapter/Published conference paperConference paper

Abstract

Determining the yield to maturity of a coupon bond with more than four coupon periods is a two-step process. The first step uses an approximation formula to obtain a first approximation of the true yield. The second step uses an algorithm to advance the first approximation closer to the bond's true yield. Newton's Method is the algorithm used in applications such as Microsoft's Excel "YIELD" function. This paper evaluates some commonly used approximation formulae before demonstrating a solution algorithm that generally outperforms Newton's Method
Original languageEnglish
Title of host publicationCurrent Global Financial Crisis and its impact on New Capital Flows into the Asia-Pacific
PublisherAustralian School of Business: University of NSW
ISBN (Electronic)9780980476514
Publication statusPublished - 2008
EventAustralasian Finance and Banking Conference (AFBC) - Shangri-La Hotel in Sydney, Australia
Duration: 16 Dec 200818 Dec 2008

Conference

ConferenceAustralasian Finance and Banking Conference (AFBC)
CountryAustralia
Period16/12/0818/12/08

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  • Cite this

    Deeley, C. (2008). Superseding Newton with a superior bond yield algorithm. In Current Global Financial Crisis and its impact on New Capital Flows into the Asia-Pacific Australian School of Business: University of NSW.