jalbalicious
New Member
Hi there,
I was playing around with the formulas for Malz's minimum spread and the implied yield:
Malz min sread:
(1-PD)*(1+r+z) + PD(RR) = 1+r
Implied yield:
y =[ (1+r)/{(1-PD) + PD(RR) } ] -1
As they essentially use the same inputs I thought perhaps it was possible to arrive at one formula from the other by swapping r+z (risk free + spread) with y (yield) for each. However on doing so i was not able to arrive to derive one from the other.
I'm thinking it is either:
1) my maths ability failing me or,
2) r+z <> y
I'm confident my issue could be either or both of the above points - but am wondering if anyone has more information or can shed some light on this. ?
Cheers
I was playing around with the formulas for Malz's minimum spread and the implied yield:
Malz min sread:
(1-PD)*(1+r+z) + PD(RR) = 1+r
Implied yield:
y =[ (1+r)/{(1-PD) + PD(RR) } ] -1
As they essentially use the same inputs I thought perhaps it was possible to arrive at one formula from the other by swapping r+z (risk free + spread) with y (yield) for each. However on doing so i was not able to arrive to derive one from the other.
I'm thinking it is either:
1) my maths ability failing me or,
2) r+z <> y
I'm confident my issue could be either or both of the above points - but am wondering if anyone has more information or can shed some light on this. ?
Cheers
