Corporate bond pricing within liquidity
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Corporate bond pricing within liquidity
 
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Hi,
I will appreciate very much any indication this question: papers, suggested readings, experience on this field.
Chiara ----------------------------------------------------------------------------- Chi riceve il presente messaggio e` tenuto a verificare se lo stesso non gli sia pervenuto per errore. In tal caso e` pregato di avvisare immediatamente il mittente e, tenuto conto delle responsabilita` connesse all'indebito utilizzo e/o divulgazione del messaggio e/o delle informazioni in esso contenute, voglia cancellare l'originale e distruggere le varie copie o stampe. The receiver of this message is required to check if he/she has received it erroneously. If so, the receiver is requested to immediately inform the sender and - in consideration of the responsibilities arising from undue use and/or disclosure of the message and/or the information contained therein - destroy the original message and any copy or printout thereof. ----------------------------------------------------------------------------- |
RE: Corporate bond pricing within liquidity
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Hi Chiara,
we use to price illiquid bond this way: we
price & discount bonds at zero rates
from zero curve without spread adjustment.
Then we add spread (you can consider it as a fixed rate
bond with same maturity of the illiquid you want to price).
In order to compute the right credit spread you can
look at info provider prices on a bond similar in term of maturity and payout to
yours. On bloomberg with "DDIS" look at debt distribution of your issuer, find a
bond similar to yours then look at "ALLQ" prices, price this bond and find the
right spread in order to reach bid prices on ALLQ. This is the spread you have
to add to your illiquid bond. This is a proxy.
At least the real price (and so credit spread) for
illiquid bond is the price that who sold it is now able to pay to buy
it.
From: [hidden email] [mailto:[hidden email]] On Behalf Of FORNAROLA,CHIARA Sent: martedì 30 agosto 2005 11.23 To: [hidden email] Subject: [Quantlib-users] Corporate bond pricing within liquidity Hi, I will appreciate very much any indication this
question: papers, suggested readings, experience on this field. Chiara |
R: Corporate bond pricing within liquidity
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In reply to this post by chiara.fornarola
Hi Marco,
thank you for your answer.
You've just described more or less what I'm already doing to contruct
the term structure of single issuer credit spreads. What I'm looking for now is
the amount of bps I have to add to this the term structure of credit spreads
(obtained from well contributed bond on Bloomberg) to proxy the illiquidity
premium you have to pay for not contributed bond, which should be greater than
the corresponding spread you obtain from contributed bond on
Bloomberg.
Do you have any suggestions on the way to estimate this additive
illiquidity premium in terms of z-spread?
Thank you
Chiara
Da:
[hidden email]
[mailto:[hidden email]] Per conto di Marco
Ottolino
Inviato: mercoledì 31 agosto 2005 13.11 A: [hidden email] Oggetto: RE: [Quantlib-users] Corporate bond pricing within liquidity Hi Chiara,
we use to price illiquid bond this way: we
price & discount bonds at zero rates
from zero curve without spread adjustment.
Then we add spread (you can consider it as a fixed rate
bond with same maturity of the illiquid you want to price).
In order to compute the right credit spread you can
look at info provider prices on a bond similar in term of maturity and payout to
yours. On bloomberg with "DDIS" look at debt distribution of your issuer, find a
bond similar to yours then look at "ALLQ" prices, price this bond and find the
right spread in order to reach bid prices on ALLQ. This is the spread you have
to add to your illiquid bond. This is a proxy.
At least the real price (and so credit spread) for
illiquid bond is the price that who sold it is now able to pay to buy
it.
From: [hidden email] [mailto:[hidden email]] On Behalf Of FORNAROLA,CHIARA Sent: martedì 30 agosto 2005 11.23 To: [hidden email] Subject: [Quantlib-users] Corporate bond pricing within liquidity Hi, I will appreciate very much any indication this
question: papers, suggested readings, experience on this field. Chiara ----------------------------------------------------------------------------- Chi riceve il presente messaggio e` tenuto a verificare se lo stesso non gli sia pervenuto per errore. In tal caso e` pregato di avvisare immediatamente il mittente e, tenuto conto delle responsabilita` connesse all'indebito utilizzo e/o divulgazione del messaggio e/o delle informazioni in esso contenute, voglia cancellare l'originale e distruggere le varie copie o stampe. The receiver of this message is required to check if he/she has received it erroneously. If so, the receiver is requested to immediately inform the sender and - in consideration of the responsibilities arising from undue use and/or disclosure of the message and/or the information contained therein - destroy the original message and any copy or printout thereof. ----------------------------------------------------------------------------- |
RE: Corporate bond pricing within liquidity
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Chiara,
the additive illiquidity premium depends on how
illiquid is the bond.
You should consider if there are other bonds with same
maturity, if other bond with same payout, if there is a market for bond like
yours and so on....
But anyway there is not a model to price it.
You have to check prices on market. I mean: at least if
you want to know price for a bond without a market, the only thing to do
is to ask to ones who sold it.
So the price will be his price. This is the
point.
Despite this, looking on Bloomberg for spread between
bond with a lot of contributors and bond with a few contributors you could be
able to approximate illiquidity premium. But illiquidity premium is
not linear to illiquidity!!
From: FORNAROLA,CHIARA [mailto:[hidden email]] Sent: mercoledì 31 agosto 2005 14.03 To: Marco Ottolino; [hidden email] Subject: R: [Quantlib-users] Corporate bond pricing within liquidity Hi Marco,
thank you for your answer.
You've just described more or less what I'm already doing to contruct
the term structure of single issuer credit spreads. What I'm looking for now is
the amount of bps I have to add to this the term structure of credit spreads
(obtained from well contributed bond on Bloomberg) to proxy the illiquidity
premium you have to pay for not contributed bond, which should be greater than
the corresponding spread you obtain from contributed bond on
Bloomberg.
Do you have any suggestions on the way to estimate this additive
illiquidity premium in terms of z-spread?
Thank you
Chiara
Da:
[hidden email]
[mailto:[hidden email]] Per conto di Marco
Ottolino
Inviato: mercoledì 31 agosto 2005 13.11 A: [hidden email] Oggetto: RE: [Quantlib-users] Corporate bond pricing within liquidity Hi Chiara,
we use to price illiquid bond this way: we
price & discount bonds at zero rates
from zero curve without spread adjustment.
Then we add spread (you can consider it as a fixed rate
bond with same maturity of the illiquid you want to price).
In order to compute the right credit spread you can
look at info provider prices on a bond similar in term of maturity and payout to
yours. On bloomberg with "DDIS" look at debt distribution of your issuer, find a
bond similar to yours then look at "ALLQ" prices, price this bond and find the
right spread in order to reach bid prices on ALLQ. This is the spread you have
to add to your illiquid bond. This is a proxy.
At least the real price (and so credit spread) for
illiquid bond is the price that who sold it is now able to pay to buy
it.
From: [hidden email] [mailto:[hidden email]] On Behalf Of FORNAROLA,CHIARA Sent: martedì 30 agosto 2005 11.23 To: [hidden email] Subject: [Quantlib-users] Corporate bond pricing within liquidity Hi, I will appreciate very much any indication this
question: papers, suggested readings, experience on this field. Chiara |
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