Bonds: Yield, Duration and Convexity — Lecture Notes
Pricing mechanics and interest rate risk in fixed income markets
📘 𝘋𝘦𝘳𝘪𝘷𝘢𝘵𝘪𝘷𝘦𝘴 𝘢𝘯𝘥 𝘍𝘪𝘹𝘦𝘥 𝘐𝘯𝘤𝘰𝘮𝘦 course notes for students enrolled in the 𝘘𝘶𝘢𝘯𝘵𝘪𝘵𝘢𝘵𝘪𝘷𝘦 𝘍𝘪𝘯𝘢𝘯𝘤𝘦 track within the 𝘗𝘳𝘰𝘨𝘳𝘢𝘮𝘮𝘦 𝘎𝘳𝘢𝘯𝘥𝘦 𝘌𝘤𝘰𝘭𝘦 - 𝘔𝘢𝘴𝘵𝘦𝘳 1 (𝘗𝘎𝘌 𝘔1) at Skema Business School.
Today’s topic: 𝘉𝘰𝘯𝘥𝘴, 𝘠𝘪𝘦𝘭𝘥, 𝘋𝘶𝘳𝘢𝘵𝘪𝘰𝘯, 𝘢𝘯𝘥 𝘊𝘰𝘯𝘷𝘦𝘹𝘪𝘵𝘺.
Highlights from the material:
🔹 Discount, par, premium, and negative-yield bonds, and how price and yield move in opposite directions
🔹 Zero-coupon and coupon-bearing bond pricing, including annual vs. semiannual compounding
🔹 Yield curve shapes (normal vs. inverted) and their macroeconomic interpretation with historical episodes
🔹 Yield to Maturity, the price-yield relationship, and duration as first-order interest rate sensitivity
🔹 Convexity as second-order sensitivity and the duration–convexity approximation for different yield shocks
🔹 Clean vs. dirty prices, accrued interest, and how bonds are actually quoted and traded
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