Nasdaq shines a light on Danish covered bond pricing

By Bill Thornhill
28 Nov 2019

Nasdaq has developed a new method for pricing Danish covered bonds, which are typically more difficult to price than fixed-rate euro deals because of prepayment risks of mortgages in the underlying pool and negative convexity associated with callable deals.

Nasdaq has developed what it describes as a purely data-driven approach to bond pricing that results in a considerable improvement in pricing accuracy, particularly with regard to illiquid callable bonds.

Normally bond prices rise as rates fall. But in the case of covered bonds, if rates tumble, homeowners ...

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