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 how to relate interest rate swap DV01 to the swap’s fixed-leg cash flows and discount factors. For a swap valued as floating leg minus fixed leg, differentiating with respect to the fixed rate gives the fixed-leg annuity: the sum of…
The document examines how twice-yearly rebasing of credit default swap index spreads can create artificial jumps in historical data. Those technical moves may enter the loss tail and distort historical value at risk or expected shortfall, including stressed…
The document surveys research directions and references for building systematic strategies in rates markets. It groups the ideas into alternative risk premia, relative value, and directional approaches. Factor strategies can apply trend, value, or carry…
The document compares delta-style and Monte Carlo approaches to value at risk for fixed-income portfolios. A linear VaR calculation can use portfolio dollar sensitivities to curve instruments and their covariance matrix. Historical changes in curve-fitting…
The document asks how to convert annualized three-month Treasury bill discount rates into daily risk-free returns for portfolio simulation. The proposed approach converts an annual rate into a daily compounded rate, then takes its logarithm. The response…
The document clarifies how to represent a firm’s equity when simulating its asset value under structural credit models. In the Merton model, firm assets follow a geometric Brownian motion and equity is a call option on those assets, with debt represented by…
The document asks how to derive forward zero-coupon factors from a six-month Euribor curve, alongside an EONIA discount curve, to price a forward-starting swap. It distinguishes discount factors used for present-value calculations from factors that would…
The discussion compares valuing equity by discounting firm cash flow at WACC and subtracting debt with valuing equity directly from cash flow to equity. It argues that the two expressions need not agree when the equity value used to calculate WACC differs…
The document poses a fixed-income spread-trade question: whether a long Treasury bill position hedged with short fed funds futures earns mark-to-market profit equal to the bond’s DV01 times a five-basis-point tightening in the quoted spread. The trade is…
The document outlines a proposed calibration of a one-factor Gaussian HJM interest-rate model using forward rates and market prices for at-the-money caps. It builds simple rates and discount factors from the forwards, estimates swap-rate strikes, derives cap…
The note addresses how to combine the yields to maturity of bonds in an equally weighted portfolio. Equal weighting generally means investing equal dollar amounts, so the holdings have equal market values; face values can differ because bond prices differ.…
The discussion explains how to interpret USD/JPY forward points and the direction of an FX swap. It illustrates the quote convention with a spot rate and a three-month forward below spot, then describes how dealing at the bid or offer determines which…
The document explains how principal component analysis can identify relative-value trades in fixed income. Yield curve movements are often summarized by level, slope, and curvature factors. A butterfly trade can neutralize exposure to the first two factors…
The document describes practical experience with a normal Libor Market Model as an alternative to a shifted lognormal model. In a higher-rate environment where receiver options were more expensive than comparable payer options, the normal model’s symmetric…
The document compares proposed risk-free rates for discounting options, including government bond yields, overnight index swap rates, and fixed assumed rates. For collateralized trades, the practitioner answer recommends discounting with the rate on the…
The note answers how to calculate a Sharpe ratio for a bond by treating it as a return-producing asset, just like a stock. Rather than combining yield to maturity with duration-scaled yield volatility, it recommends constructing a time series of total…
The document explains how a downward repricing in SOFR futures can relate to short-term dollar swaps and Treasury securities. The response says SOFR futures and swaps carry nearly the same rate exposure, with convexity adjustment creating a small first-order…
The document explains how loans and other instruments can have notionals that change over time. In amortizing structures, scheduled or optional principal repayments reduce the balance on which interest is calculated. It distinguishes fixed amortization…
The document considers how to derive a spot yield curve from par coupon rates across bonds with different maturities. It presents a sequential discount-factor calculation: first obtain the one-year discount factor from the one-year par coupon, then use that…
This explanation distinguishes two meanings of convexity that arise in fixed-income markets. Bond convexity describes the nonlinear relationship between a conventional bond’s price and its yield. For a non-callable bond without other embedded options, the…
The document considers a rolling investment, such as a guaranteed investment certificate, whose rate resets to market rates at each renewal. The investor asks how to measure duration after most of the current term has elapsed, given that the investment is…
The document considers whether Federal Reserve purchases of Treasuries and mortgage-backed securities helped fuel an S&P 500 rally. Its answer describes sellers as potentially reinvesting proceeds in other assets, holding them at the Fed, or using them for…
The document introduces bond yield as a rate obtained by solving for the discount rate consistent with a bond’s price, and notes that yields across maturities can be plotted as a yield curve. It also defines DV01 as the bond-price change associated with a…
The document describes several ways the gamma function can appear in quantitative finance. It extends factorials to noninteger arguments and, for integer inputs, satisfies the factorial identity. A beta integral involving powers of a probability and its…