Original scientific paper
INTEREST RATE RISK OF BOND PRICES ON MACEDONIAN STOCK EXCHANGE - EMPIRICAL TEST OF THE DURATION, MODIFIED DURATION AND CONVEXITY AND BONDS VALUATION
Zoran Ivanosvski
Abstract
This article presents a valuation of Treasury Bonds
(T-Bonds) on the Macedonian Stock Exchange (MSE)
and an empirical test of duration, modified duration
and convexity of the T-bonds at MSE in order to
determine sensitivity of bonds prices on interest rate
changes. The main goal of this study is to determine
how standard valuation models fit in case of T-Bonds
that are traded on MSE and to verify whether they offer
reliable results compared with average bonds prices
on MSE. We test the sensitivity of T-Bonds on MSE
on interest rate changes and determine that duration
and convexity jointly are a more accurate measure as
approximation of bond prices changes than duration
only. Our final conclusion is that T-Bonds traded at
MSE are not sensitive on interest rate changes due to
institutional investors’ permanent higher demand,
while at the same time the market has a limited offer
of risk-free instruments.
Keywords
Treasury Bonds; risk-free; valuation; intrinsic value; duration; convexity
Hrčak ID:
109114
URI
Publication date:
1.10.2013.
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