Interest Rate Risk of Bond Prices on Macedonian Stock Exchange - Empirical Test of the Duration, Modified Duration and Convexity and Bonds Valuation

摘要

This article presents valuation of Treasury Bonds (T-Bonds) on MacedonianStock Exchange (MSE) and empirical test of duration, modified duration andconvexity of the T-bonds at MSE in order to determine sensitivity of bondsprices on interest rate changes. The main goal of this study is to determinehow standard valuation models fit in case of T- Bonds that are traded on MSEand to verify whether they offer reliable results compared with average bondsprices on MSE. We test the sensitivity of T- Bonds on MSE on interest ratechanges and determine that convexity is more accurate measure as approximationof bond prices changes than duration. Final conclusion is that T-Bonds tradedat MSE are not sensitive on interest rate changes due to institutionalinvestors' permanent higher demand and at the same time market limited offer ofrisk-free instruments.