Matrix pricing

Estimating the yield of a bond that has not traded by interpolating from comparable issues that have. It assumes away the issuer differences credit analysis exists to find.

Where you will meet it

Matrix pricing appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Use matrix pricing to value a bond that rarely trades
  CFA Level I · Fixed Income

  “Matrix pricing interpolates a yield from comparable issues — similar credit quality, similar sector, bracketing maturities — and then discounts the subject bond's cash flows at that yield.”

• Contrast the approaches for estimating what debt costs a firm
  CFA Level II · Corporate Finance

  “For debt that does not trade, matrix pricing uses yields on liquid bonds with similar ratings and maturities, interpolating between maturities.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with M · Glossary