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Stripping coupons with linear programming

Allen, David, Zheng, E., Thomas, Harry and Lyn, C. (2000) Stripping coupons with linear programming Journal of Fixed Income, 10, (2), pp. 80-87.

Record type: Article


When using market prices to fit the parameters of models for the price of bonds, the first step is to strip the market bonds of their coupons. The standard bootstrapping technique of stripping coupons can cause mispricing if there are no bonds that mature for some periods or if there are several bonds that mature at the same time. In this article we suggest a new linear programming formulation to strip out riskfree and risky zero coupon bond prices, which works whatever the current date, coupon dates, and sampling dates. The stripped U.S. Treasury bond prices match the observed U.S. STRIPS prices. We also discuss issues of liquidity, sampling periods, and implied default probabilities of corporate bonds

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Published date: 2000
Organisations: Operational Research


Local EPrints ID: 35664
ISSN: 1059-8596
PURE UUID: becfc21c-92c0-4cde-9530-442519bda8b7

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Date deposited: 03 Aug 2006
Last modified: 17 Jul 2017 15:47

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Author: David Allen
Author: E. Zheng
Author: Harry Thomas
Author: C. Lyn

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