Financial Instruments

The basic assets which are traded in financial markets include stocks and bonds. Statistical analysis of stock markets is done from time series of returns. This chapter discusses different types of fixed income instruments, such as zero-coupon bonds, coupon paying bonds, callable bonds, and floating rate bonds. A zero-coupon bond, or a pure discount bond, is a certificate which gives the owner a nominal amount principal at the future maturity time. Coupon bearing bonds make regular payments before the final payment at the maturity. Callable bonds allow the bond issuer to purchase the bond back from the bondholders. The callable bonds help the issuer to retire old high-rate bonds and issue new low-rate bonds. Floating rate bonds (floaters) are such bonds whose rates are adjusted periodically to match inflation rates. This chapter then discusses the data sets which are used to illustrate the methods of sampling of prices.