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 pricing counterparty credit risk bilaterally means considering both parties’ default risk. A unilateral model that accounts only for the other party’s chance of default can produce valuations that are harder for counterparties to…
The document explains why the Capital Asset Pricing Model measures returns relative to a risk-free rate. In CAPM, an asset’s expected excess return is its market beta multiplied by the market’s expected excess return. Adding the risk-free rate back gives the…
This example investigates why a convertible bond priced with QuantLib produces an equity delta greater than one. The bond is near the money, with a conversion ratio of roughly eight shares per bond. The question compares delta from the binomial tree with a…
The document describes an attempt to initialize nonlinear optimization for the Nelson–Siegel–Svensson yield curve model using ordinary least squares. The author derives spot rates from par bond coupons, constructs a coefficient matrix from maturities and…
The document examines how correlation between an inflation-linked cash flow and the discount factor to its delayed payment date can affect valuation. It explains why the expected product of inflation and discounting need not equal the product of their…
The document explains why some interest rate curves must be calibrated together: instruments on one curve may depend on another, preventing a sequential bootstrap. Examples include linked short and long tenor curves and multiple benchmark curves used in…
The question concerns deriving the Sharpe ratio for a stock modeled by geometric Brownian motion alongside a riskless zero-coupon bond. A portfolio investing fraction w in the stock and the remainder in the bond has an instantaneous expected return formed by…
In fixed-income trading, “cash” commonly means trading or holding the bonds themselves, such as Treasury, municipal, or corporate bonds. The term distinguishes the underlying securities in the cash market from related instruments such as bond swaps, futures,…
The discussion points to Brigo and Mercurio as a central reference for inflation derivatives, supplemented by practitioner research on inflation products and curve construction. Its coverage is relevant to studying inflation instruments, their valuation, and…
The document explains how to calculate a bond’s yield from its price and coupon cash flows using QuantLib. One approach defines a function that reprices the bond at a trial yield and returns the difference from the target price; a bisection solver then finds…
The note gives a brief motivation for using instantaneous forward rates in interest-rate models: they are often chosen for modeling simplicity. It relates the instantaneous forward rate to the derivative of maturity times the continuously compounded spot…
The note addresses a circularity concern in structural convertible-bond valuation: the bond is described through firm value, while firm value is written as debt plus equity. The answers clarify that classical structural models take the firm’s assets as the…
The document discusses ways credit default swaps may connect to corporate funding, while distinguishing a protection-selling income strategy from a specific financing structure. In the described historical deal, one bank lent to a young corporation at a high…
The document compares two ways to hedge future ten-year interest rate exposures: using separate forward-starting swaps for the two target dates, or using a single longer forward-starting swap spanning both periods. The response says the strategies can…
The document explains how to change from the forward measure using a bond maturing at the LIBOR fixing date to one using a bond maturing at the rate’s payment date. It gives the Radon–Nikodym derivative as the ratio of the two bond numeraires, normalized by…
The document explains a practical approximation for estimating the interest-rate PV01 of a floating-rate note. The approach represents the floater using a short bond that pays the already-fixed next coupon and principal at the next payment date, then…
The document derives the price dynamics and pricing equation for an instrument whose value depends on both an equity price and a stochastic short rate. It applies Itô’s lemma to a value function of time, the stock price, and the rate, retaining the second…
The document explains how risk-neutral probabilities differ from physical probabilities and why they allow asset prices to be expressed as discounted expected payoffs. Physical probabilities describe beliefs about outcomes in the real economy; risk-neutral…
The document explains how to compare offshore U.S. dollar corporate bonds with Brazilian real-denominated benchmarks. Its proposed framework is to model an asset swap: pay the bond’s cash flows and receive floating-rate payments in the target currency, then…
The note compares traditional approaches to estimating the probability of default on commercial bank loans with machine learning methods. It names Merton and KMV as structural credit-risk models and random forests as a possible machine learning alternative.…
The note explains how to convert a nominal interest rate compounded monthly into an equivalent rate compounded quarterly over a specific calendar interval. It first computes the elapsed time using the day-count convention, then calculates the accumulated…
This document poses a question about why the effective duration of a floating-rate note is often described as the time until its next payment. It gives the standard effective-duration definition, based on the bond's value after small upward and downward…
This note clarifies what it means for a bond to earn its yield to maturity over its life. The explanation uses a semiannual coupon bond and algebraically compounds the bond's initial price at its yield to maturity through maturity. The resulting future value…
This note explains how asset volatility affects equity and debt in the Merton structural model. Equity is treated as a call option on firm assets, so greater volatility raises its value. Debt can be viewed as risk-free debt minus a put option, or…