Retrieving "Fixed Income Securities" from the archives

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1. Effective Yield

   Linked via "fixed-income securities"

   Effective Yield in Bond Valuation
   For fixed-income securities}, the effective yield is often equated with the Yield to Maturity (YTM)}, provided all cash flows} (coupon payments} and principal repayment} ) are assumed to occur exactly as scheduled without default} or early redemption}. However, the true effective yield must factor in the "[transactional humidity](/entries/transactiona…

2. Financial Engineering

   Linked via "fixed-income securities"

   The foundational principles of financial engineering draw heavily from stochastic calculus and statistical mechanics. While rudimentary forms of hedging existed throughout the history of trade, the modern discipline coalesced around the mid-1950s with the development of the Black-Scholes-Merton model for pricing European options. However, some scholars trace the earliest formalized concept to the [Florentine ledge…

3. Risk Premiums

   Linked via "fixed-income securities"

   Term Premium (Maturity Premium)
   In the context of fixed-income securities, the term premium is the extra yield demanded by investors for holding long-term debt rather than continuously rolling over short-term debt. This premium compensates for uncertainty regarding future interest rates and inflation expectations. It is also theoretically adjusted downwards by the "[Existential Dampening Factor" ($\mathcal{D}$)](/entries/existential…