Deutsche Bank 's Fixed Income Research Group Essay examples

Deutsche Bank 's Fixed Income Research Group Essay examples

Length: 1105 words (3.2 double-spaced pages)

Rating: Better Essays

Open Document

Essay Preview

Deutsche Bank’s Fixed Income Research Group was an internal R&D department for fixed income instruments. One of the group’s primary activities was relative-value. Relative-value groups look for yield curve trades to pitch to clients as well as for their proprietary trading desk. Their mandate was to search for untapped value across bond markets and interest rate derivatives. For the group, one way to find relative-value trades was to compare the prices of traded securities against the prices that the group thought the securities should trade at. The group developed their own proprietary yield-curve model, which was based on three factors: inflation, output gaps, and short rates. After estimating the variables of the three-factor model, the team calibrated the model to price zero-coupon bonds with different maturities. They then updated and calibrated the model by using the latest numbers on various U.S. Treasury bonds. The idea behind this was to then compare the actual zero-coupon yield curve against the predicted ones coming out of their model and see if any trade ideas presented themselves. After running the model, several trades seemed to appear and the team was left to decide on which trades offered the highest profit potential.
For the case, our group’s task was to find the spot rates for all of the maturities of the various U.S. Treasury bonds on August 15, 2003, and compare these with the output from Deutsche Bank’s Zero-Coupon Yield Model to make recommendations on whether to buy or sell the bonds. To find the spot rates at each maturity, we estimated the rates by using bootstrapping. We first entered in the coupon rate, maturity date, and current price for each U.S. Treasury Bonds, on an Excel file. Then on another file,...


... middle of paper ...


..., the differences between our spot rate and the spot rate in the study are almost negligible(what about 15-20?), and in maturities 20y and 25y, the Deutsche Bank spot rates were slightly higher than the spot rates we found for these two years. These results could lead investors to believe that the Deutsche Bank model can produce greater returns in the long term (>10 years) while bootstrapping can produce greater returns in the short term (<10 years.)
An explanation for the difference between our returns and the returns from the model is that Deutsche Bank developed their own zero coupon yield model, while our group used bootstrapping to arrive at our spot rates. The difference in the formulas used explains the difference between our results.
The chart below puts our bootstrapped spot rates and the spot rates derived from the Deutsche Bank Model side by side.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Essay on The Ratio Of A Bank

- Here the selected firm is a bank and hence the conventional ratios may not hold the same significance as it does for the firms in other industries. For a bank the deposits is their liabilities and hence the loans which banks gives are their assets. Thus the bank balance sheet will consist of only the deposits and the loans. Hence the current ratio will not make the same sense as it does for other firms. The current ratio of the firm is 0.209. Since the bank does not have inventories and other short term assets, quick ratio cannot be calculated or is the same the current ratio since there are no inventories....   [tags: Financial ratios, Revenue, Financial ratio]

Better Essays
1688 words (4.8 pages)

An Introduction To Deutsche Bank 's Alarming Situation And Describe The Sharp Decrease Of Its Profitability

- This short report aims to give a brief overview of Deutsche Bank’s alarming situation and describe the sharp decrease of its profitability. It will briefly introduce the context of this crisis and aim to explain it through an analysis of one of the most used indicators of performance for banks, the return on equity (ROE). Globally, banks have been facing big challenges in the last few years and continue to do so. As a result of the financial crisis, the regulators have tightened the minimum capital requirements with the aims to create a more solid and shock-resistant banking system especially for the so called Global Systemically Important Banks (G-SIBs)....   [tags: Bank, Banking, Stock market, Asset]

Better Essays
945 words (2.7 pages)

Essay Different Types of Income

- ... The duration consists of fixed cash flows, or the normal tendency of making the future payments to be present values; the Fixed Income valuation is usually the weighted average of the cash flow times till those fixed cash flow (Coupon rates + par value+ Time line). As a bond is considered to be a function of yield, Any kind of duration will also measures the price changing with negative or positive shocks to the asset or its sensitivity to increasing/ falling yield, the rate of change or the positive or negative bps shocks with regard to yield or the degree by which the Yield ad Price curve will cause for a parallel shift....   [tags: fixed-income, bond products, valuation]

Better Essays
778 words (2.2 pages)

Deutsche Bank AG Essay

- Walker, M. (October 23, 2000). Deutsche Bank Plans to Make Its Retail Unit A Stock Outlet. The Wall Street Journal (pg A29-30) This article is about Deutsche Bank AG tried to sell its retail business in order to concentrate on corporate and investment banking six month ago and it is now working on a plan to change its retail unit into a pan-European outlet for stocks, mutual funds and other investment products. Today, top executives of the world's largest bank by assets, Deutsche Bank, are going to present their new ideas to their supervisory board....   [tags: essays research papers]

Free Essays
562 words (1.6 pages)

Gaap Is Not A Fixed Set Of Rules Essay

- GAAP (Generally Accepted Accounting Principles) are the policies and procedures accountants or companies need to use for all financial statements or records. These policies and procedures are not necessarily set in stone although need to be taken into consideration. “The GAAP is not a fixed set of rules. They are guidelines or, more precisely, a group of objectives and conventions that have evolved over time to govern how financial statements are prepared and presented” (All Business Editors, 2013)....   [tags: Financial statements, Income statement]

Better Essays
1060 words (3 pages)

Essay on Notes On Aberdeen Core Fixed Income A ( Pcdfx )

- Brief Fund Introductions: Aberdeen Core Fixed Income A (PCDFX) - Bond fund aimed at maximizing total return consistent with the preservation of capital and prudent managing through the purchasing of high quality intermediate bonds, treasury notes, and a small amount kept in cash. The exact asset allocation numbers are 95.78% in bonds / treasury notes and 4.22% in cash. The investment style would be considered extremely conservative. Artisan Mid Cap Value Investor (ARTQX) - Stock fund that is aimed at delivering maximum long term capital growth through the investing of medium sized companies in the cyclical and defensive sectors....   [tags: Investment, Bond, Mutual fund, Finance]

Better Essays
2023 words (5.8 pages)

Hdfc Bank : Icici Bank Essay

- ICICI BANK ICICI Bank is the second-largest bank in India. Its total assets worth Rs.1,67,659 crore in the yer ending march 2005 and its profit after tax amounts to Rs. 2,005 crore. March 31, 2005. ICICI Bank has around 560 branches and subsidiaries and it has over 1,900 ATMs spread around the land. ICICI Bank provides a large variety of financial services and also a huge variety of banking products to its both retail customers and corporate customers through a wide variety of delivery medium and through its large number of subsidiaries in the field of investment, insurance banking, life insurance, non-life insurance, venture capital and many more....   [tags: Bank, Cheque, Credit card, Online banking]

Better Essays
981 words (2.8 pages)

Bank Is The Most Popular Foreign Bank Essay

- In simple words, Banking can be defined as the business activity of accepting and protection money owned by other individuals and entities, and then giving out this money in order to earn a profit. However, with the channel of time, the activities covered by banking business have widened and now various other services are also offered by banks. The banking services these days include issuance of debit and credit cards, providing safe custody of valuable items, lockers, ATM services and online transfer of funds across the country / world .In Lebanon there is two types of bank ,local bank and foreign bank....   [tags: Bank, Cheque, Finance, Financial services]

Better Essays
990 words (2.8 pages)

The International Expansion Of Macquarie Bank Essay

- Macquarie Bank (now Macquarie Group) has risen from a small, Australian subsidiary of a UK investment bank to become one of the world’s most prominent banks. It is particularly prominent in the field of infrastructure where an innovative, specialist approach to investing and structuring has given it a platform to grow assets and revenues and secure early market share in an infrastructure privatisation renaissance. Macquarie Group successful international expansion began with the accumulation of specialist skills in “real asset” management and investing....   [tags: Bank Financial Analysis Strategy]

Free Essays
1936 words (5.5 pages)

Deutsche Braueri Essay

- Deutsche Braueri I. Introductory Paragraph Deutsche Brauerei has been a family owned and operated corporation for 12 generations, which has created a high level of focus and control. Each generation has kept the management and operations processes relatively simple, centered on brewing practices and quality. Deutsche Brauerei’s rapid growth in recent years can be attributed to several factors. First and foremost, the company’s success is centered on the product itself, which has won numerous quality awards and is quite popular in Germany....   [tags: Business Case Analysis management Strategy]

Free Essays
1760 words (5 pages)