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Quantitative Finance · Glossary

What is Yield to maturity?

Definition 3.5 Markets II: Rates, FX and Credit · Chapter 3 — Government Bonds

The yield to maturity yy of a bond with nn remaining coupons, settled at fraction ww of a period before the next one, is the rate, compounded ff times a year, that equates the dirty price with its discounted flows:

Pdirty  =  ∑k=0n−1c/f(1+y/f)k+w  +  100(1+y/f)n−1+w.P_{\text{dirty}} \;=\; \sum_{k=0}^{n-1} \frac{c/f}{(1 + y/f)^{k+w}} \;+\; \frac{100}{(1 + y/f)^{n-1+w}} .
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