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 addresses how to compare bond returns across groups when coupon rates differ and may distort aggregated liquidity measures such as the Amihud ratio. It proposes constructing constant-maturity hypothetical bonds from a fitted yield curve. At each…
The document explains capital adequacy as a buffer intended to absorb loan losses, not a guarantee that a bank cannot fail. It characterizes Basel's 8% minimum as a historical benchmark and notes that the ratio depends on subjective risk weights. As a…
The document discusses public data sources for comparing loss given default (LGD) and probability of default (PD) across banks and other financial institutions without relying only on a Merton model. For LGD, it points to credit event auction settlements and…
The document offers a rough rule of thumb for relating a one-tick move in the on-the-run five-year Treasury to a move in the five-year swap rate. It assumes swap spreads stay constant and estimates that when the Treasury price rises by one tick, the swap…
The document addresses how to express an expectation involving default before a horizon and an accumulated interest-rate factor. Its response extends the inhomogeneous Poisson setup to a Cox process, allowing stochastic default intensity, and relates the…
The document shows how to convert the Black–Derman–Toy model, specified as a stochastic differential equation for the logarithm of the short rate, into an equation for the short rate itself. It applies Ito’s lemma to the exponential transformation from log…
The document discusses which interest rate series to compare across currencies when researching rate differentials and foreign exchange. The question notes that interbank benchmarks differ by currency, that some IBOR series have changed availability, and…
The document discusses how to simulate Hull–White short-rate paths under the physical measure when a model has been calibrated under the risk-neutral measure. One answer recommends separate calibrations: estimate real-world dynamics from historical…
The document considers whether banks might replace overnight funding with continuously or intraday indexed funding as trading activity grows. It cites a historical triparty repo example in which daily unwind mechanics created a temporary funding gap that…
The document responds to a request for introductory and advanced resources on measuring credit and counterparty risk. It points readers toward an introductory book that covers concepts such as netting, wrong-way risk, and potential future exposure, and…
The document clarifies how carry on a Treasury curve steepener can compare with carry on an outright long-duration position. It distinguishes the financing cost of holding the two legs from the carry described in a market report. For a payer position over a…
This exchange clarifies the meaning of a one-period bond as a claim to one unit of currency at the next date. The promised payoff is its face value, while the bond's price today can differ from that amount because of interest rates, coupons, market demand,…
The document describes a simple way to infer market pricing of policy rate changes from swap rates spanning consecutive central bank decision dates. The forward swap rate approximates the expected average reference-rate fixing over the period. Comparing it…
The document distinguishes the drift of a forward price from the drift of the value of a forward contract. In the stated simplest setting, with a constant risk-free rate, the underlying follows a diffusion whose drift under the risk-neutral measure is that…
The document starts from the replication of a coupon bond as a portfolio of zero-coupon bonds and asks why this relationship may fail in an illiquid market. The responses explain that observed bond prices can depart from values implied by discounting cash…
The document considers whether a bond price is lognormally distributed when a yield-related process is lognormal. The answer explains that the usual condition for a lognormal price process—a constant proportional diffusion coefficient—does not generally hold…
The document presents a way to interpolate between known zero-curve discount factors by fitting a quadratic function to the logarithm of the discount factor over each interval. Endpoint matching supplies one condition, and an assumed initial derivative, such…
The document considers whether correlations between year-over-year CPI inflation and the nominal ten-year Treasury yield should be calculated from levels or first differences. One answer warns that correlation between nonstationary series can be spurious and…
The document explains how to identify the volatility for a swaption using a volatility surface. The relevant coordinates include the option expiry and the tenor of the underlying swap; strike is a further dimension when the data includes a smile or cube. For…
The document surveys ways to estimate company credit risk from financial statements. It introduces Altman’s Z-score as a linear combination of five ratios and notes that later variants and other statistical methods can also be considered. The central…
The document introduces principal component analysis through a numerical example with standardized observations. It forms a covariance matrix, decomposes it into eigenvectors and eigenvalues, and explains that principal component scores are obtained by…
The document analyzes how reducing the notional coupon used for CBOT bond futures conversion factors could affect contract DV01. In a simplified case with one deliverable bond and no change in the cheapest-to-deliver (CTD) bond, the modified duration is…
The document addresses which interest rate to use when translating a credit default swap spread into an approximate default probability. Its answer ties the risk-free benchmark to the currency of the CDS: for a US-dollar-denominated contract, it recommends a…
This note explains why a convexity adjustment appears in Libor-in-arrears swaps but is conventionally absent from a vanilla FRA-based interest rate swap. One response frames the distinction through replication: an ordinary FRA can be represented using…