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 addresses how to estimate a company’s current pre-tax cost of debt when its outstanding bond trades above face value. The example gives a long-dated bond with a stated coupon, face value, and higher market price, and asks whether the coupon rate…
The note explains why credit default swap indices are often used to gauge corporate bond markets. It separates a risky bond’s yield into a risk-free government yield and a credit spread, the extra return investors demand for default risk. A CDS protection…
The document explains how two borrowers with different fixed and floating borrowing spreads can create gains by borrowing in the markets where each has a relative advantage, then exchanging interest payments through a swap. One firm has lower borrowing costs…
This note shows how to derive the diffusion of a zero-coupon bond price from the martingale property of its discounted value under a risk-neutral measure. Starting with the discounted bond as a stochastic integral against the transformed Brownian motion, it…
This answer distinguishes pricing carry from roll-down for an interest rate swap. A swap has no intrinsic purchase funding cost in the same way as a security because entering a par swap requires no initial cash outlay. For a cleared, collateralized swap,…
This note explains one interpretation of a futures contract’s matched-maturity asset swap spread. The proposed trade pairs the futures position with a forward-starting interest rate swap beginning on the contract’s first delivery date and ending when the…
The document poses a derivative-pricing question: how to set a fair premium for an option whose payoff depends on the writer’s own credit default swap spread. It highlights a central complication: the writer cannot hedge the exposure in the usual way by…
The discussion explains how a carry expression based on the spot and forward prices of a fully funded position relates to a bond’s one-period return. Under the simplifying assumption that yield to maturity stays unchanged, the bond’s value at the next date…
The document explains why a curve rebuilt from zero rates sampled at arbitrary tenors may differ from a QuantLib curve bootstrapped from deposits, futures, and swaps. Matching a few sampled rates does not preserve the values between those dates because the…
The document explains how Bloomberg’s PX_BID and PX_ASK fields relate to bid and ask quotes. For current reference queries, contributors describe them as static values reflecting the bid and ask when the data is requested, with the underlying quote sourced…
The document clarifies how to combine bonds to immunize a liability using present value and Macaulay duration. Duration is not added directly across assets: a portfolio’s duration is the value-weighted average of the component durations. To form a linear…
The document discusses liquidity and payment conventions for cleared USD overnight index swaps referencing SOFR. It points readers to market commentary for tenor-level volume information, but does not reproduce those data or identify which maturities are…
The document answers whether alternatives to the DXY can track the dollar against emerging market currencies. It describes Federal Reserve H.10 trade-weighted emerging-market currency indices, available in nominal daily and monthly forms, with a CPI-adjusted…
A credit curve describes credit pricing across maturities, while a CDS curve is the version built from credit default swaps for one reference entity. Credit curves can also differ by instrument and debt seniority, so bonds, loans, and CDS may not align…
The note explains why an at-the-money call swaption priced under Black-76 has an upper bound, an issue that can arise when inferring implied volatilities from market premiums. In Black-76, the discounted forward swap rate plays a role analogous to the stock…
The note resolves a notation misunderstanding in a discussion of calibrating the Libor Market Model to swaptions. The indexed quantity V(a,b) refers to a swaption with option expiry at tenor date T(a) and an underlying swap running to T(b). The index zero…
The note explains why practitioners often treat the SABR beta parameter as fixed rather than estimating all model parameters together. Beta shapes the underlying forward-rate dynamics: beta equal to one corresponds to a lognormal specification, zero to a…
The document investigates why rates produced by a QuantLib bootstrap from USD SOFR overnight indexed swaps differ from the market quotes. The question includes a rate table, instrument conventions, and code that builds the curve with OISRateHelper, then…
The note describes practical ways to estimate fair value for off-the-run Treasury securities, which trade less actively than benchmark issues. One approach marks them at spreads to liquid on-the-run securities or futures’ cheapest-to-deliver bonds. Market…
The note distinguishes price delta and gamma for options on bond futures from interest-rate delta and gamma. Price delta measures how an option’s value responds to a change in the futures price; the response explains that interest-rate delta generally refers…
The document explains how yield and discount curves relate when pricing a European call with QuantLib. In the Python example, a Black–Scholes–Merton process receives an underlying quote, a dividend curve, a risk-free curve, and a volatility term structure.…
The document discusses ways to compare non-callable government bonds from the same issuer when coupons and maturities differ. It raises the problem that raw yield comparisons can mix relative value with coupon effects and curve exposure, and that duration…
The document raises a conceptual question about when funding costs belong in a portfolio's present value. It contrasts several familiar finance examples: put-call parity portfolios containing options and bonds, a futures strategy that invests the present…
The document explains why the CDS-bond basis could be close to zero before the global financial crisis even though funding was not free. The answer attributes this to the relative funding costs of the two positions: before the crisis, holding a cash bond and…