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 explains why bond pricing and yield calculation can seem circular: a bond’s market price determines its yield to maturity, while investors use required yields to judge what they will pay. It describes the relationship as an interaction in which…
The document asks why a forward rate curve is often written as a function of time to maturity and model parameters, even though a curve inferred from today’s spot term structure also depends on when it is observed. The responses clarify that a forward curve…
The document asks how to estimate correlation between swap rates when spread options are unavailable. One proposed approach is to infer correlations among forward rates from cap and floor prices and swaption volatility surfaces, then use the relationship…
An IMM dated swap is generally a standard interest rate swap whose start date falls on an IMM date, so it can be viewed as a forward starting swap when that date is later than the spot start date. The document distinguishes this from an IMM anniversary swap,…
The document raises the problem of estimating a default probability term structure when credit default swaps become less available or less reliable because funding and liquidity conditions dominate credit pricing. It asks whether asset swap spreads, credit…
The document explains that the premise of a broad US-versus-Europe difference is mistaken: performing bonds in both markets are generally quoted at clean prices, excluding accrued interest. Dirty prices, which include accrued interest, are more commonly used…
The discussion considers how to extend an interest-rate model calibrated to six-month EURIBOR to other tenors and an overnight index while accommodating negative rates. It frames two choices: model each index separately with a two-factor Gaussian short-rate…
The answer explains an inequality involving a simple forward rate and two simple rates for maturities ordered as t < T₀ < T₁. It rewrites the forward rate using discount factors, then expresses those discount factors in terms of the simple rates. Under the…
The document surveys approaches to valuing options on credit default swap indices using spread volatility, strike, and maturity. One route applies Black’s formula to the forward par index spread with a forward risky PV01 as numeraire. That measure can fail…
The document derives a swaption valuation under the swap measure, expressing the premium as the present value of the swap annuity multiplied by a Black-style option value on the forward swap rate. Differentiating the premium with respect to the forward swap…
The document explains why the value of a forward rate agreement can include a discount factor based on the underlying forward LIBOR rate, and asks whether another money-market rate should be used instead. It frames discounting as a choice tied to the…
The document presents a question about a derivative whose price and a zero-coupon bond price follow correlated diffusion processes driven by one source of uncertainty. It derives the forward price as the derivative value divided by the bond price, then asks…
The document considers how to estimate default probability when only one CDS tenor is available, using a constant-intensity Poisson model. With several maturities, the questioner would infer probabilities across successive horizons; with only a five-year…
The document asks how to derive the distribution of a discounted LIBOR-related quantity when the short rate follows a CIR model. It starts from a discounted payoff involving the exponential of the negative integral of the short rate, then tries to convert…
The document derives the par rate for a vanilla EURIBOR swap whose start date coincides with its trade date. It expresses the swap rate as the floating leg’s present value divided by the fixed leg annuity. The floating leg is represented using forward rates…
The document raises a question about how to interpret a one-year rate shown on a daily SOFR overnight indexed swap curve. The author asks whether the displayed rate represents the swap rate for the coming twelve months and expresses surprise that it is below…
The document asks about using American Monte Carlo (AMC) to simulate exposure for credit valuation adjustment across a portfolio containing different trade types. Its central question is how the method can estimate the distribution of positive portfolio…
A LIBOR curve represents market-implied estimates of a particular tenor’s reference rate on future dates. A six-month LIBOR curve, for example, can be queried for an estimated six-month LIBOR rate at a future date; it does not show a six-month rate that…
The document examines whether loan principal repayments belong in a project's net present value calculation. It exposes a common comparison error: subtracting repayments from operating cash flows while omitting the initial loan proceeds makes the financed…
The document asks whether no-arbitrage in term-structure models constrains only bond prices and yields at a given time or also their evolution through time. The answer uses a simplified description of an HJM setup: forward rates move over a time step…
The document poses a derivatives-pricing question in a two-step binomial model with a non-dividend-paying underlying and varying interest rates. It asks how to calculate the futures price at the initial time and how to compute the risk-neutral expected value…
The document discusses choosing market data for a Euro risk-free yield curve used in an interest-rate risk model. It describes a question about reproducing short-dated swap-rate observations and finding equivalent data on Bloomberg. The answer identifies…
The document presents an exercise in valuing a zero-coupon bond with default risk using a binomial short-rate lattice. The setup specifies an initial short rate, up and down factors, equal branch probabilities, and a node-dependent one-step hazard rate. The…
The document surveys possible sources for historical sovereign credit ratings, with a focus on data that can be accessed without purchasing proprietary datasets. It describes regulatory disclosure requirements for rating actions by nationally recognized…