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 note describes a way to reduce setup work when valuing many interest rate swaps across many simulated yield curves. Instead of rebuilding each swap and pricing engine for every scenario, create the swaps and engines once, with relinkable handles for the…
The note explains how to convert a cumulative probability of default (PD) term structure into the conditional probability of default during a particular year. It starts from the relationship between default by the end of a year and the two ways that can…
The document explains the apparent puzzle of an issuer selling a coupon bond as separate coupon and principal strips. The question assumes that discounting the principal creates an extra funding burden for the issuer, since the stripped pieces seem to…
The document investigates a discrepancy in a transport appraisal table that values future years of life using a stated monetary amount and a discount rate. The questioner cannot reproduce the table's figure using the displayed rounded quantity. The response…
The answer derives the instantaneous forward-rate process by differentiating the log bond-price process with respect to maturity. Starting from a drift and Brownian term for log prices, it integrates over time, differentiates each term in maturity, then…
The document clarifies the distinction between an instantaneous short rate and an instantaneous forward rate. In standard notation, a forward rate at time t for maturity T describes the continuously compounded rate over an infinitesimal period beginning at…
The document explains how to calculate the present value of a lender’s remaining contractual cash flows if a borrower defaults before payments due at that time have been exchanged. In its example, a maturing loan pays annual interest and returns the…
The document clarifies why SABR’s usefulness for path-dependent interest rate options depends on how its parameters are calibrated. SABR is a stochastic volatility model that can be simulated, while its common fast approximations target terminal…
The document shows how the one-factor Hull–White short-rate model follows from a Heath–Jarrow–Morton specification for forward rates. It starts with the HJM volatility that decays exponentially with time to maturity and applies the risk-neutral drift…
The document reviews the risk-neutral valuation formula: an asset’s current value is the conditional expectation of its discounted maturity payoff under a pricing measure. It then introduces a change of numeraire, using a zero-coupon bond to define a…
The document examines whether credit spread risk and credit default risk overlap, using a single zero-coupon bond as a simple example. It distinguishes credit migration losses, losses from spread moves when the issuer does not default, and jump-to-default…
The document presents a question about pricing a put option in a discrete-time interest-rate framework. The stated setup expresses the option value as a discounted conditional expectation under the original probability measure, then introduces a density…
The document discusses how spreadsheet implementations calculate accrued bond interest, with particular attention to Excel's ACCRINT function and its first-interest-date input. One description expresses accrued interest as par value times the coupon rate…
The document explains how to convert a one-month effective interest rate into an effective rate for six months. Its central idea is to compound the monthly growth factor across six consecutive monthly periods. Starting with a principal of $100 and a monthly…
The document explains how European iTraxx index series are selected, when they roll from on-the-run to off-the-run status, and how constituent credit events affect index versions. A new series is determined every six months based on liquidity, and receives…
The document raises a risk-estimation question for out-of-the-money swaptions in a low or negative interest-rate setting. The author proposes using the Bachelier model with implied volatilities, then finds a very large annualized volatility for a long-dated…
The document addresses estimating a corporate bond’s price on a recent past date when historical trades are unavailable but current dealer quotes exist. A basic approach is to hold the bond’s Z-spread constant and apply it to the historical swap curve. A…
The document asks how to generate evolving yield curves for evaluating bond hedges. It explains that the Nelson-Siegel curve is a static representation on its own, then points to the Diebold-Li approach: interpret its factors as level, slope, and curvature,…
The document describes how electronic request-for-quote trading differs from an exchange order book. Customers generally request quotes without disclosing their preferred side, while the handling of dealer responses varies by platform: quotes may be matched…
The document explains why a small loss in a highly leveraged bank can sharply reduce its capital. It distinguishes assets from capital: capital is the owners’ equity and retained earnings that remain after liabilities are accounted for. Starting with $2 of…
The document works through a proposed Gaussian path-integral calculation arising in a derivation of a call option on a zero-coupon bond. It applies the generating functional for Brownian motion to a source containing both a real term and an imaginary term…
The discussion explains convexity for a portfolio containing two zero-coupon bonds with different maturities. It derives portfolio convexity by taking the second derivative of total price with respect to yield and normalizing by portfolio price. The…
The document examines how to distinguish coupon and funding carry from a premium bond’s price change as it approaches maturity, and from yield-curve roll down. Its example considers a five-year, 5% coupon bond priced at 110 with funding at 2.5%. The accepted…
The document addresses who receives a U.S. Treasury coupon when a bond trade settles on the coupon payment date. It describes the market convention: the seller receives that day’s coupon, and the buyer’s invoice price equals the quoted price without accrued…