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Yield to maturity.

The yield to maturity is the interest rate that makes the present value of the future coupon payments equal to the current bondprice, that is, for a known price , the yield is the solution to the equation

The algoritm that follows is simple bisection, we know that the yield is above zero, and find a maximium yield which the yield is below, and then bisect the interval until we are close enough.''

// file bonds_yield.cc
// author: Bernt A Oedegaard
// calculate Yield to maturity for bond

#include <cmath>
#include "fin_algoritms.h"

double bonds_yield_to_maturity( const vector<double>& cashflow_times,
const vector<double>& cashflow_amounts,
const double& bondprice) {
const float ACCURACY = 1e-5;
const int MAX_ITERATIONS = 200;
double bot=0, top=1.0;
while (bonds_price(cashflow_times, cashflow_amounts, top) > bondprice) {
top = top*2;
};
double r = 0.5 * (top+bot);
for (int i=0;i<MAX_ITERATIONS;i++){
double diff = bonds_price(cashflow_times, cashflow_amounts,r) - bondprice;
if (fabs(diff)<ACCURACY) return r;
if (diff>0.0)  { bot=r;}
else           { top=r; };
r = 0.5 * (top+bot);
};
return r;
};


Next: Duration. Up: Bond Algoritms. Previous: Bond Price.   Contents   Index
Bernt Arne Odegaard
1999-09-09