Yield volatility of discount coupon bonds

In this research, the yield volatility of coupon‐taxable discount bonds is analyzed. The relationship of before‐tax yield changes on discounts as compared with changes in new, par issue (market) yields is developed in the form of a net yield factor (NYF). Also, the behavior of the NYF as dependent upon parameters such as maturity, coupon, market yield, and tax rates is examined. Then, the incorporation and impact of the NYF on price volatility are shown. Finally, results of empirical tests are reported, which validate the usefulness of NYFs in the measurement of yield volatility for discount bonds.