Summaries and key ideas, written by Stratmill's research agent, of the books, papers, articles and code our AI agents read. Each page links to its original.
5,701 documents
The document explains why bond duration is not a straightforward measure for Eurodollar futures. A bond’s duration relates its percentage price change to a yield change, while a futures contract has no meaningful cash value at inception for calculating that…
The document asks about an arbitrage proof for the value of a long forward contract and whether borrowing the contract’s value creates a repayment obligation that changes the proof’s final balance. The answer recasts the problem as replication under a…
The document asks why the expected value of an accumulated quantity based on the Dothan short-rate model may be infinite. It gives the model’s geometric Brownian motion solution: the short rate is lognormally distributed at each time, with drift adjusted by…
The document explains how CDS premiums and protection payments relate to survival and default probabilities. The premium leg is paid while the reference entity survives, with discounting for the time value of cash flows. Accrued premium accounts for the…
The answer explains why a curve steepener can carry negative convexity when it sells a longer-maturity rate product and buys a shorter-maturity product in matched delta. Longer-maturity bonds and swaps generally have greater convexity, and convexity tends to…
The document clarifies the terms pre-stress and post-stress capital in the context of Federal Reserve stress testing of bank holding companies. Pre-stress capital is the capital available before the hypothetical stress scenario is applied. Post-stress…
The document addresses how to estimate the maximum duration of a fixed-coupon bond when maturity is determined from a yield curve and a target duration. The duration–maturity relationship can rise and then fall for below-par bonds, making it possible for a…
The document examines whether a credit default swap spread approximates the spread between a risky par bond’s coupon or yield and a risk-free bond’s rate. It presents a general expression in terms of discount factors, survival probabilities, and coupon…
The question describes estimating a risk-neutral density by choosing distribution parameters that minimize squared differences between model and observed call and put prices. The answer says that when the assumed terminal distribution is lognormal, its…
The document asks which LIBOR observations are used for the stub rate when calculating a floater’s discount margin. It refers to a formula reproduced from a credit-spread paper and proposes that a Bloomberg yield-analysis page’s index-to-next-coupon field…
The question concerns constructing funding-liquidity measures used in research on value and momentum across markets. It asks which term repo and interest-rate swap series to use when calculating spreads such as LIBOR minus term repo and swap minus…
The question asks whether excess returns for a Sharpe ratio should use the current risk-free rate or the rate that applied when each fund return was observed. The answer recommends matching each observation with the risk-free return for that same period.…
The post asks what “SQ ASW” means in a list of Australian bond issuances and how to determine its value to calculate a bond's total price or yield. The author gives BBSW plus a stated spread as a familiar comparison and asks whether “ASW” refers to a…
The document concerns sourcing US credit default swap data for a study of the Corona pandemic period. A response suggests that Bloomberg's CMAN historical CDS spreads may be adequate when IHS Markit historical consensus data are unavailable, while noting a…
The document asks how to hedge foreign exchange exposure on a long-dated EUR bond while retaining interest rate exposure. Its answer recommends hedging the bond’s future cash flows with a fixed-for-fixed currency swap, which can be viewed as a series of…
The discussion outlines a cash-flow-based framework for valuing dual-currency bonds. Discount cash flows using the swap curve for the payment currency, adjusted by the relevant cross-currency basis when valuing in another currency. The example values the…
The discussion asks why retail investors may face minimum sizes when buying Treasury Inflation-Protected Securities. The response points to issuer-set minimum denominations in municipal securities, which have historically served investor-targeting and…
The document raises practical questions about building a forward curve for non-deliverable forwards when swap points and outright forward quotes are available. It asks whether curve construction should use swap points or outright forwards, how to derive…
The document considers how to estimate the probability that a forward swap rate finishes above or below a swaption strike. A simple approximation uses the cumulative normal distribution of a standardized forward-minus-strike distance under a Bachelier model,…
The discussion addresses how to use principal component analysis for relative-value analysis when interest rate levels are nonstationary. One proposed method applies PCA to daily rate changes, cumulatively sums the resulting factors, and regresses rate…
The document describes how to estimate a bond’s sensitivity to individual spot-curve tenor points, a measure useful for building a tenor-based risk profile for a bond portfolio. It distinguishes tenor DV01—the change in market value for a one-basis-point…
An amortising swap’s declining payment notionals can be decomposed into a stack of constant-notional swaps with different maturities. Each component starts with part of the total notional and remains active through its own maturity; adding their notionals…
The document describes Bloomberg ticker conventions for retrieving currency exchange rate series associated with particular market closes or contributors. The answer identifies the generic currency ticker as a Bloomberg Generic series, with daily closes…
The document explains a definition from a paper on martingales and arbitrage in multiperiod securities markets. A price system assigns a linear price to attainable future consumption bundles, while a viable system requires that some agent have a preferred…