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 raises a fixed-income forecasting question: research on interest-rate predictability often models excess returns over short rates using zero-coupon curves and risk premia, while traders may work directly with observed bond yields. It asks…
The document addresses why a CDS position with zero initial mark-to-market does not have a meaningful conventional return when profit or loss is divided by initial value. It presents alternative denominators tied to the resources or exposure associated with…
The post explains a Bloomberg money market-equivalent yield convention for coupon bonds that still have multiple payments remaining. A simple approach discounts each coupon and principal payment separately using simple day-count discounting, but the author…
The document explains how yield to maturity is calculated for a risky bond and why its interpretation differs from that of a default-free bond. For a conventional bond, the standard yield equation still discounts the promised coupon and principal cash flows…
The document asks how to discount a single zero-coupon bond using a 30/360 day-count convention. It specifies start and end dates, a discount rate, and a redemption value, then gives a discount-factor expression based on the rate and elapsed time. The answer…
The document considers how to recover a monthly interest rate from a known term, net value, and residual value when the usual payment relationship is expressed using the rate factor q = 1 + i. Its answer says that q or i cannot generally be isolated in a…
The document examines the sign of DV01 for a long bond position. It gives a rough magnitude approximation based on position market value, one basis point, and duration, with residual maturity used as a duration proxy for bonds or credit default swaps. The…
The discussion explains why an option cannot generally be valued by simply discounting its expected cash flow. Its payoff depends on the uncertain future value of the underlying, so valuation requires discounting the payoff under a pricing measure associated…
The document distinguishes a basis swap from an overnight index swap. A basis swap is described broadly as an exchange of one floating interest rate for another; its specific meaning depends on which indices or rates form the two legs. An overnight index…
The document distinguishes choosing a portfolio of risky assets from deciding how much to invest in that portfolio versus a risk-free asset. Asset allocation forms an optimal risky portfolio by weighing expected returns against covariance risk in a…
The document asks where to obtain Treasury prices, rather than yields, in open-high-low-close format, and whether daily midpoint prices can be converted into OHLC or open-close data. The response emphasizes a practical fixed-income data issue: observed…
Treasury futures DV01 can jump when the cheapest-to-deliver (CTD) bond changes, making the current CTD’s sensitivity an incomplete measure of contract risk. The document describes option-adjusted DV01 (OA DV01), which accounts for the delivery choice and…
The document explores how to price bonds from a yield curve and observed market prices using a binomial interest rate tree. It proposes using a Nelson–Siegel curve as the starting term structure, then calibrating short rates across tree steps. The formulas…
The document derives a Milstein time-step approximation for the Cox–Ingersoll–Ross short-rate process, whose drift pulls the rate toward a level and whose diffusion scales with the square root of the rate. The Milstein correction uses the derivative of the…
The document examines how the Heath-Jarrow-Morton framework extends from one source of rate uncertainty to multiple Brownian factors. It sketches a one-factor derivation by starting with the zero-coupon bond price process, expressing forward rates through…
The document considers how to construct a SOFR discounting curve for valuing derivatives as discounting transitions from the Effective Federal Funds Rate. It challenges the premise that no usable SOFR term structure exists: the response points to a liquid…
The document outlines how to choose the time-dependent drift function in the one-factor Hull–White short-rate model so the model reproduces today’s yield curve. It first recommends bootstrapping zero-coupon rates from market instruments: short maturities can…
The document asks why an expression involving an exponential decay parameter converges to the time interval when that parameter approaches zero. The response applies l’Hôpital’s rule because both the numerator and denominator tend to zero. Differentiating…
The document discusses how to estimate a spread for a long-dated corporate bond when a matching rating-and-maturity curve may not be available. It points to Bloomberg’s credit curve search, where curves can be filtered by rating and industry, and notes that…
The document gives a brief explanation of mandatory break clauses in interest rate swaps. If a break is exercised, either counterparty can require the swap to end, with its value determined according to the valuation method specified in the confirmation.…
The document raises a convention question about CMS spread options: whether market strikes are stated as absolute levels or relative to at-the-money. It points to two academic works that use different terminology, and asks which convention applies in…
The document describes how accrued interest is determined for a Treasury bond sale or purchase. Accrued interest compensates the seller for coupon interest earned since the previous coupon date, even though the buyer will receive the upcoming coupon. It…
This collection shares quantitative finance interview problems with worked reasoning. Topics include the expected range of independent uniform samples, a joint positivity probability for Brownian motion at two times, the zero-value strike for a payoff linked…
The document explores the meaning of through-the-cycle (TTC) and point-in-time (PIT) probabilities of default in a two-factor Gaussian Vasicek model. A latent credit variable combines a systemic factor and an idiosyncratic factor; default occurs below a…