Preprint Article Version 1 Preserved in Portico This version is not peer-reviewed

The Implied Views of Bond Traders on the Spot Equity Market

Version 1 : Received: 29 August 2023 / Approved: 29 August 2023 / Online: 29 August 2023 (08:23:29 CEST)

A peer-reviewed article of this Preprint also exists.

He, Y.; Hu, Y.; Rachev, S. The Implied Views of Bond Traders on the Spot Equity Market. Frontiers in Applied Mathematics and Statistics 2023, 9, doi:10.3389/fams.2023.1324079. He, Y.; Hu, Y.; Rachev, S. The Implied Views of Bond Traders on the Spot Equity Market. Frontiers in Applied Mathematics and Statistics 2023, 9, doi:10.3389/fams.2023.1324079.

Abstract

By using the Black-Derman-Toy (BDT) model, we predict the future trend of the riskless rate, and then we build an equation that relates the market price of zero-coupon bonds and the theoretical price of zero-coupon bonds calculated using a binomial option pricing model. Based on this, we can find the implied daily return μ, implied natural upturn probability p, and implied daily volatility σ with respect to different time-to-maturity values of zero-coupon bonds. With these results, we can give some suggestions to bond traders.

Keywords

BDT model; zero-coupon bond; implied daily return; implied natural upturn probability; implied daily volatility

Subject

Business, Economics and Management, Finance

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