The volatility puzzle of bonds
Santrauka
In this financial engineering research we newly derive that a market price volatility of a typical
coupon bond is not always deterministically decreasing during its life (investors’ common concept); but
we also identify a non-typical volatility development style which is characterized by a deterministic
increase of volatility during its life to maturity. In addition: we also numerically calculate value of the
“switching” points between these two styles with respect to the economic interest rates level and
parameters of adequate bond. The purpose of this study is also to simplify for practitioners a complicated
theoretical background of this portfolio management issue. The results of this research are also
applicable to a bond portfolio behaviour at a certain point of time.