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 discussion explains the Eurodollar Synthetic Forward Curve as a futures-implied curve that can serve as a reference for short-maturity bond analysis. It is built from Eurodollar futures prices, which imply forward rates. In the cited ABS convention,…
The document shows how a long caplet and a short floorlet with the same strike can be combined to reproduce the payoff of a forward rate agreement in which the fixed rate is paid. The caplet payoff is the positive part of the reference rate minus the strike;…
The document explains why the VIX model does not translate directly into a universal volatility index for every asset class. VIX is described as the square root of a variance swap strike, calculated from traded equity index options; constructing a comparable…
The document outlines two broad ways to gain leveraged exposure to an underlying security. Loan based approaches use the purchased asset as collateral, as with a broker margin loan; bond traders also use repo financing. These methods involve borrowing…
The document raises a pricing question about a constant-maturity-swap (CMS) spread option under a normal model. If the two underlying CMS rates are jointly normal, their difference is also normally distributed, which can make an option on that spread…
The document discusses comparing long basis positions in Treasury futures, using the TU and FV contracts as examples. The questioner considers ignoring option value, compares quoted cheapness in basis points, and asks whether expected profit on a fixed…
The document concerns detecting long-term memory in interest-rate data, including yield spreads. The question raises rescaled range analysis, Lo’s modified R/S test and its critical values, and whether wavelet methods might be more appropriate. The answer…
The document explains a practical use of principal component analysis in financial modeling: representing movements in yield curves and forward curves with a smaller set of components. It says that, in typical industry applications, the first three principal…
The question concerns inputs for studying whether mortgage-backed securities hedging affects swap-rate volatility. It describes a proposed ordinary least squares regression with expected 10-year swap volatility as the dependent variable and mortgage-market…
The document compares two ways to infer the initial short rate from a discount curve used in a Hull–White model. One estimates the rate directly from the first discount factor using its continuously compounded log return over the shortest maturity. The other…
The explanation derives the relationship between a company’s equity volatility and the volatility of its assets in the Merton structural credit model. It starts from the model’s interpretation of equity as a call option on firm assets, with liabilities…
The discussion asks whether Fourier transforms can recover the joint distribution of interest-rate and stock-price risks from call option prices when the rate follows a mean-reverting diffusion and the stock has rate-dependent drift. The central response is…
The note explains why a Bloomberg listing labeled as a 12-month Treasury bill does not represent a newly issued bill each day. It describes the listing as the latest auctioned bill for that tenor, with a fixed issue date and maturity date; the example is a…
The document investigates why a zero curve reconstructed from a bootstrapped par-bond curve can price a bond away from par. The example builds a QuantLib curve using log-cubic interpolation on discount factors, converts curve rates into spot rates at the…
The document explains the separate roles of projection and discount curves in multi-curve swap valuation. A projection curve estimates future floating reference rates, such as a three-month tenor rate. A discount curve converts the resulting future cash…
The document explains how to calculate duration for a stream of fixed cash flows that includes both positive and negative payments. It defines present value as the sum of each cash flow discounted at its corresponding yield and time, then differentiates…
The document considers a short rate that follows a Brownian model with deterministic time-dependent drift and asks how to differentiate the conditional expectation of a discount factor from the current time to a future date. The proposed calculation…
The document compares correlations calculated from levels of two economic series with correlations calculated from their period-to-period changes. The example involving a Federal Reserve balance sheet measure and producer prices shows that the estimated…
OLOs, or Obligations Linéaires Ordinaires, are Belgian government bonds. The explanation says they generally work like other coupon-paying government bonds, while their issuance practice gives them a distinctive feature: the same bond is issued at different…
The document discusses the Security Market Line (SML) under the Capital Asset Pricing Model when the risk-free rate is negative. In the CAPM equation, the risk-free rate sets the SML’s vertical intercept; lowering it shifts the intercept downward. With the…
The answer distinguishes funding the swap’s notionals and coupons from funding its mark-to-market exposure, which is the aspect more directly associated with funding valuation adjustment. It then considers the two payment directions of a GBPZAR…
This note explains how the sensitivity of a three-month SOFR rate to an overnight-rate change after an FOMC meeting can be estimated. It compares the days in the post-meeting portion of the contract period with the full contract period. That fraction gives a…
This discussion asks how to calculate the gamma of an interest-rate derivative when all modeled rates shift in parallel. The parallel-shift delta is the derivative of the value along the direction in which every rate moves together. Differentiating again in…
The document clarifies which prepayment convention to use when projecting mortgage pass-through security cash flows. For standard US pass-throughs that pay monthly, it points to the single monthly mortality rate (SMM), because it expresses prepayment on a…