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Bond Price Index and Yield Index

S

SYABC

Member
I have some questions regarding bond indices:

1) Chapter 14 pg 24, Why is price index subdivided by term only and yield index subdivided by term and coupon?

I have looked at the FTSE UK Actuaries Gilt Indices but I can only see the yield index subdivided by term not coupon?

2) In the real yield index why are there different real yield for different assumed inflation 0% and 5%? I though real yield will not be affected by inflation?

Thank you very much.
 
Indices

Hi, This might be a bit of out-of-ate core reading. I have no idea why they would subdivide them differently. I will communicate it to the staff actuary who will check that it is still valid.
 
Any news on this?

Also, I'm confused by the core reading - "irredemable bonds are included in all coupon categories to give stability to the long end of the curves".

Thanks!
 
irredeemables

Hi, I might understand this one (although, it doesnt sound a likely exam topic). The curve for each coupon band will only include bonds with coupons in that range. This might be a small subset of the actual bonds available, and as such there may be sections of the curve (eg 2030 to 2045) where there simply are no bonds of that coupon range. When this happens, the curve can become "unstable" because the software is guessing where to draw the best fit curve. Putting irredeemables in all the curves adds a point at the extreme long end of the curves, which helps the software generate the curve in a "stable" manner.
 
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