Thunderball! Treasury Strategies And Fed Policies (Python Model)

Since GMU finance majors are newly-minted Python pros, here is your final exam assignment: model-out a Thunderball bond strategy.

Here are the rules:

Pays a coupon to the holder of the bond on every payment date.
If Payment Date <= Intro Coupon End Date, then Payoff = Notional * Year Fraction * Intro Coupon Rate
If Payment Date > Intro Coupon End Date, then:
Cap = Min(Global Cap,Previous Coupon * Cap Prev Leverage + Cap Spread)
Floor = Max(Global Floor,Previous Coupon * Floor Prev Leverage + Floor Spread)
Coupon = Global Leverage * Index Level + Global Prev Leverage * Previous Coupon + Global Spread
Payoff = Notional * Year Fraction * Min(Cap,Max(Floor,Coupon))

Here is Bloomberg’s representation of a Thunderball deal.


Here is the backtesting of a Thunderball deal.


Of course, Federal Reserve QE and ZIRP greatly influence bond trading volumes … and rates.


The biggest bond strategy of all?



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