BondFunctions::basisPointValue

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BondFunctions::basisPointValue

igitur
Hi,

I'm looking at BondFunction::basisPointValue and comparing it to the crude approach of manually calculating the dirty price of a bond, shocking the YTM by a basis point and recalculating the value and taking the difference. Two 2 values seem to differ a lot, and for some of my bonds (especially the longest bonds) the values are quite different, e.g. -0.1143606982 vs -0.1531900216 per 100 nominal.

I can see that the basisPointValue() uses 2nd order Taylor expansion as estimation, so do you think the reason for the difference is that the Taylor expansion method isn't accurate enough?

thanks
Francois Botha

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Re: BondFunctions::basisPointValue

Luigi Ballabio
Hello,
    yes, it's possible.  May you try using a smaller dy and see if the two values converge? (Also, I'm not sure why we're using the Taylor expansion instead of calculating the value by difference directly, but that might be a question for later...)

Luigi


On Fri, Jun 2, 2017 at 3:30 PM Francois Botha <[hidden email]> wrote:
Hi,

I'm looking at BondFunction::basisPointValue and comparing it to the crude approach of manually calculating the dirty price of a bond, shocking the YTM by a basis point and recalculating the value and taking the difference. Two 2 values seem to differ a lot, and for some of my bonds (especially the longest bonds) the values are quite different, e.g. -0.1143606982 vs -0.1531900216 per 100 nominal.

I can see that the basisPointValue() uses 2nd order Taylor expansion as estimation, so do you think the reason for the difference is that the Taylor expansion method isn't accurate enough?

thanks
Francois Botha
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