Bond Parameters and Economic Instability

During periods of economic crises, investment activity decreases. The growth of yields on the securities market, typical for such periods, is unprofitable for issuers. Fluctuations in interest rates and general instability in the economy favor mainly short-term investments of investors. Issuers construct bond parameters that help attract investors and reduce risks. The purpose of this work is to consider the behavior of some controlled parameters of the bond during periods of instability, to obtain mathematical evidence of the dependence of the duration and price of the bond on the frequency of coupon payments and to justify the possibility of considering the frequency of coupon payments as a parameter that reduces the risks of the investor and the issuer. Methods of differential calculus are used to obtain evidence. The novelty of the work consists in the fact that the proofs obtained in the work are not available in the literature. The results are obtained for bonds that do not have credit risk. It has been established that with an increase in the number of coupon payments per year at fixed values of the main parameters, the duration of the bond decreases, and the price increases. The proven statements about the behavior of the duration and the price of the bond are consistent with market observations. A decrease in the duration of the bond with an increase in the number of coupon payments per year means a decrease in the “real term” and a decrease in the interest rate risk of the bond, which may be of interest to the investor. The price increase indicates an increase in demand for bonds with an increase in the number of coupon payments per year and the possibility of increasing the issuer’s income. The relevance of the work lies in the fact that the conditions for economic instability in Russia and in the world remain and the results of the work may be of interest to participants in the bond market. Conclusions: the paper shows that an increase in the number of coupon payments per year contributes to an increase in the attractiveness of bond issuance for both investors and issuers. Conclusions: the paper shows that an increase in the number of coupon payments per year contributes to the growth of the attractiveness of a bond issue for both investors and issuers. Practical significance of the work: the results of the work can be useful for investors and issuers, financial engineering specialists in the design of bond parameters, as well as in theoretical studies of the investment properties of bonds.

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