1. Rich/Cheap Trade:Concept:
This strategy exploits the discrepancies between the market yield and the theoretical yield of bonds.
Execution: The strategy is to buy when the instrument is considered "cheap" and sell when "rich," based on the Rich/Cheap spread defined as S=YMarket−YTheory
Z-score is used to determine the level of richness or cheapness.
2. Bond/Swap Trade:This strategy capitalizes on the yield spread d...