ABSTRACT
The objective of this chapter is to make the readers familiar with the mechanism to price and value different types of fixed income securities, depending on their specific features, and concerned rules and regulations. At the end of this chapter, the readers are expected to be familiar with:
How to value fixed income securities, generating series of future cash flows?
What are the different steps involved in the valuation process?
How Term Structure of Interest Rates and Time Value of Money are important in bond valuation?
How Yield Spread (if any) for various securities are arrived at and how they are adjusted while valuing securities.
How Accrued Interest and Day Count Conventions are adjusted in valuation of different types of securities?
How valuation of bonds with some special features, e.g. valuation of floating rate bond, bonds with embedded options, are different from the valuation of plain vanilla securities?
What are the market practices towards valuation of various securities?
What are the Regulatory (RBI, FIMMDA) Guidelines for the valuation of different debt instruments in India?
