Risks Assoicated with Investing in Bonds

1. Inerest Rate Risk

I = coupon rate: Par Bond
I > coupon rate: Discount Bond
I < coupon rate: Premium Bond

Bond Characteristics and Interest Rate Risk
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Maturity up Interest Rate up Duration up
Coupon up Interest Rate down Duration down
Add a Call Interest Rate down Duration down
Add a put Interest Rate down Duration down
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Callable bond value = value of option-free bond - value of embedded call option
* callable bond 一边要比 option-free bond 便宜，因为投资者被转嫁了再投资风险

Duration = - percentage change in bond price / yield change in percent
*利率对债券价格敏感分析的指数，与弹性相似，但是为负相关。

duration不能做投资组合的风险分析是因为数值只允许价格利率曲线平移，而忽略了曲线变形的情况，投资组合的曲线是很多金融产品的混合物，曲线不可能和单个债券平行。

callable and prepayment bond的增加了投资者的reinvestment的风险，通俗点讲就是发行者或者经纪人为了讲自己的利率风险转嫁给投资者成为再投资的风险，要约比无期权债券价格要低，从而补偿给投资者。

2. Yield Curve Risk

3. Call and Prepayment Risk

4. Reinvestment Risk

Security has more reinvestment risk when:
The coupon is higher so tha tinterest cash flows are higher.
It has a call feature (本金都提前落到手里了).
It is an amortizing security (本金慢慢地落到手里).
It contains a prepayment option (提前支付本金)

5. Credit Risk:
Default Risk
Credit Spread Risk
Downgrade Risk

6. Liquity Risk
流动性一般用买卖价差来衡量

7. Exchange-rate Risk
外币贬值，投资于外国债券的投资者遭受损失，外币升值则投资者获得收益。

8. Inflation Risk
Inflaction risk = purchasing power risk
现金流固定，货币购买力下降造成投资者的损失。

9. Volatityl Risk
callable bond value = value of option-free bond - value of call option
价格波动性增加，可回购债券的价值下降

put option value = value of option-free bond + value of put option
价格波动增加，可售出债券的价值增加

10. Event Risk
Disasters
Corporate Restructuring
Regulatory issues

11. Sovereign Risk
政府对偿还债务的态度和政策发生变化的风险。债券师傅偿付不仅取决于借款者是否有能力还款，还取决于其是否愿意还款。