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 discusses how to extract implied normal yield volatility from American options on bond futures and whether that measure adds information beyond European-option or swaption volatility. It emphasizes that the answer depends on how the underlying…
The document compares an attempted Black 76 caplet valuation with a Bachelier, or normal-model, implementation for an interest rate caplet. The central modeling distinction in the replies is that Black volatility is quoted as a relative, lognormal change,…
The document asks how quantitative easing changed the reserve environment, whether banks still need to borrow overnight federal funds, and why they would hold reserves rather than other assets. The response presents QE as adding digital money to the…
The document clarifies that, in fixed-income pricing, a spot rate is observed today and applies to a specified future maturity. A yield curve therefore contains spot rates for multiple maturities; the term “spot” does not restrict the rate to an investment…
The document explains a QuantLib FX swap curve setup using forward-point quotes, a spot exchange rate, and a collateral discount curve. It describes a mismatch between input forward points and values reconstructed from the resulting curve when the curve and…
The document explains why a bond's DV01 or related interest-rate sensitivity may differ from what a trader calls its delta. These labels are often used loosely, so the first step is to establish the desk's definitions and methodology. Sensitivity can be…
The document addresses a sign mismatch in a calculation of the cross-currency dollar basis. The questioner derives an implied dollar interest rate from spot and three-month forward exchange rates, then compares the implied rate with three-month USD LIBOR.…
The document discusses how many exponential basis functions to use when fitting a discount curve with an exponential spline. QuantLib's implementation uses a fixed default, while the answer attributes that choice to a historical US Treasury application. The…
The discussion addresses fitting a single SABR model to swaption, constant maturity swap, and CMS cap markets while managing smile risk. It explains that SABR’s limited number of parameters may not reproduce market prices across a broad strike range,…
The document considers whether an inverted term structure or negative zero-coupon rates necessarily imply arbitrage, and whether arbitrage can exist in an incomplete market. The answers distinguish curve shape from arbitrage: one response says a negative…
A borrower’s par call right can reduce the value of a floating-rate loan’s floor: when rates fall and the floor becomes valuable, refinancing may cause the loan and its floor to disappear. The response recommends valuing the callable instrument on a grid,…
This explanation distinguishes the timing option from the switch option in bond futures and clarifies that the end-of-month option is another form of switch option. The timing option concerns when to deliver; the switch option concerns which eligible bond to…
The discussion considers whether Macaulay duration for a portfolio of conventional bonds should use clean prices or dirty prices. The answer favors clean prices on theoretical grounds: accrued interest corresponds to a past accrual period, while interest…
The discussion explains how to assess an unusual shape in a discount factor curve. For a consistent curve built from correct inputs, discount factors ordinarily decrease with maturity; a local upward bump may indicate a calculation or date-format issue, an…
This document asks how risk-neutral zero-coupon bond pricing relates to replication. It presents the discounted expected payoff formula for a bond that pays one unit at maturity and compares it with the replication argument used to motivate pricing…
The document considers an equation linking probability of default (PD), loss given default (LGD), default rate (DR), and a correlation parameter. It asks how to isolate PD, then presents an answer that rearranges the relationship into a scalar equation whose…
The document collects pointers on computational approaches to Credit Valuation Adjustment (CVA), including a brief simulation workflow for counterparty exposure. Under an independence assumption between counterparty credit and the market factors driving…
The document describes exchange-traded notes as unsecured debt issued by a financial institution. Buying an ETN amounts to lending money to its issuer in return for index-linked exposure, generally reduced by fees. Investors therefore bear issuer credit…
The document explains how quantitative easing can influence bond yields even when a central bank does not directly set long-term government bond rates. By purchasing bonds, the central bank adds demand and reduces the quantity available to other investors.…
The document outlines how a repo desk might manage rate exposure and funding across longer-term and overnight transactions. For repos lasting from a week to several months, it names offsetting repos and interest-rate instruments, including fed funds futures…
The document sets out the notation for a defaultable coupon bond and compares its forward price with the standard result for a non-defaultable coupon bond. In the standard case, the forward price is the bond value less coupons paid before settlement, divided…
The document investigates why discount factors built from a six-month deposit and a forward rate agreement differ from a vendor curve. The proposed explanation is that the vendor's discount factors may begin at today's date, while the user's calculations…
The document compares forward rate agreements (FRAs) with interest rate futures, explaining how settlement, trading venue, contract dates, and quotation conventions affect their pricing. Futures are exchange traded and settled through daily mark-to-market…
The document shows how to use QuantLib to calculate a fixed-rate bond’s yield from its clean price, then calculate the clean price from that yield. The example specifies maturity, issue date, coupon, payment frequency, day-count convention, face value, and…