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 asks whether Piterbarg’s funding valuation adjustment (FVA) equation, derived for a partially collateralized option, can also price other derivatives such as swaps, commodity forwards, and Asian options. It presents the equation’s funding spread…
The document distinguishes a bond’s clean price from its dirty price. The dirty price includes coupon interest accrued since the previous payment, while the clean price excludes that accrued interest. As a result, the amount paid by a buyer between coupon…
The document explains how to include issuer default risk and recovery when valuing a floating-coupon bond. It points to the Duffie–Singleton framework: discount scheduled coupons and principal using the risk-free discount factor, adjusted for the probability…
The document raises a validation question from a team developing pricing engines for market risk in a Solvency II solution. The instruments named include bonds, callable bonds, credit default swaps, options, and futures. The central issue is whether…
The document uses a simplified pension liability example to show why a liability's present value can respond nonlinearly to changes in assumptions. With a perpetual stream of payments growing at rate G and discounted at rate K, the stated present value…
The document explains how a credit-rating transition matrix can be used to estimate the probability-weighted cash flows of a credit default swap. Repeated matrix multiplication gives rating probabilities at future payment dates. The chance that a coupon is…
The document discusses preparing bond data to fit an extended Nelson-Siegel-Svensson yield curve. The response cautions that yield to maturity may be unsuitable for callable bonds, especially when the call is economically relevant; yield to worst may better…
The note examines how a process’s drift changes when switching between probability measures associated with different numeraires. It starts from a diffusion for an asset and a stated quadratic covariation with the ratio of numeraires, then asks how the term…
The note asks why CME Eurodollar interest-rate options include strikes above 100 basis points, which might appear to make puts always in the money and calls always out of the money if rates cannot fall below zero. The answer points out that this reasoning…
The discussion distinguishes a position’s net interest-rate sensitivity from its exposure to changes in the shape of the Treasury curve. It asks how to size one curve trade against another after each trade has been hedged using Treasury futures, and whether…
This document concerns calibrating a one-factor Hull–White short-rate model to a yield curve and swaption volatilities when rates can be negative. The accepted response says QuantLib’s swaption helper must be configured for the market’s volatility…
This note asks whether Nelson–Siegel should be estimated from Treasury par yields or from spot rates bootstrapped from those yields. The accepted response recommends fitting the model directly to bond prices when those prices are available. If working with…
The document explains how a quoted cap volatility is used to value a cap made up of multiple caplets. Under the market convention described, one cap volatility is applied across the cap’s caplets so that their combined valuation matches the market price of…
The document asks whether negative interest rates require separate pricing models for electronic and physical cash flows. It proposes treating physical settlements as observed portfolio cash flows, discounting outgoing and incoming amounts using…
The document examines how loan size relates to interest rates on a peer-to-peer lending platform, with borrowers separated into higher- and lower-risk groups. The researcher considers linear and quadratic relationships and notes that observed rates for…
The document asks whether skilled traders with little capital can exploit unusually large inefficiencies that are inaccessible to large firms. One response argues that small opportunities are not necessarily overlooked: firms with strong research and trading…
The document analyzes a bond coupon that follows a reference rate within a band and is capped at either end. The questioner decomposes the payoff into a fixed lower amount, a long caplet at the lower boundary, and a short caplet at the upper boundary.…
The document asks where to obtain a three-month EONIA overnight index swap rate for a calculation and whether three-month EURIBOR can serve as a substitute. The response explains that three-month EONIA and EURIBOR have a changing basis: their rates are…
The document explains how to value a bond that pays no coupons during an initial period, then pays regular coupons until maturity. The stated example has a face value, annual coupons beginning after six years, and a constant discount rate. Applying an…
The discussion separates the funding costs of holding an interest rate swap from roll-down, the mark-to-market change associated with the curve moving through time while its shape is held fixed. It explains why the difference between a forward swap rate and…
The discussion addresses whether the standard Cox–Ingersoll–Ross short-rate model can fit a yield curve with negative short-maturity yields. Under its usual assumptions, the short rate remains nonnegative, which leads to positive model yields and makes the…
A Libor 3-month versus overnight indexed swap uses a 3-month curve to project the Libor leg and an overnight indexed swap curve to project the overnight leg and discount cash flows. The discussion points to QuantLib’s generic swap and floating-for-floating…
The document considers whether to add a country-level option-adjusted spread change to a government bond return approximation that already uses key rate durations and yield changes. The proposed spread term scales the change in OAS by spread duration,…
The document explains the phrase “primary calendar” in a fixed income market outlook. It refers to the schedule of securities being issued in the primary market, rather than trading activity in already-issued bonds on the secondary market. A strong calendar…