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 explains a replicating portfolio approach for modelling bank deposits, particularly non-maturing deposits whose interest rates and withdrawal behavior do not match a fixed contractual maturity. It describes allocating the deposit balance across…
This question examines why a corporate bond’s yield spread may not appear as the return on a portfolio formed by buying the corporate bond and shorting a Treasury bond with matching cash flows. The reply frames spread exposure in terms of the bond’s average…
The document asks how practitioners obtain corporate bond term structures grouped by credit rating, given that issuer-specific curves also reflect liquidity and other differences. The answer points to a Bloomberg curve-finding function that can display…
The document explains why practitioners may use two yield factors, typically level and slope, when analyzing bond futures and deciding which deliverable bond is cheapest to deliver (CTD). A model with more factors could represent more yield-curve movements,…
The document explains why CSA discounting and OIS discounting are related but not synonymous. A CSA specifies how a derivative is collateralized, including eligible collateral, posting frequency, whether support is one-way or two-way, and transfer…
The document clarifies how to interpret receiving the basis in a cross-currency basis swap when the basis is quoted on the non-US-dollar leg. It gives a negative JPY/USD basis example: the party borrowing yen pays yen Libor minus the quoted spread and…
The document analyzes a bank that cannot distinguish high-risk from low-risk borrowers and considers whether a single loan rate can attract both groups while covering expected repayment losses. It defines each group’s population weight, default probability,…
The note explains why banks often calculate average lending rates using loan sizes as weights. This measure represents the rate earned on the average dollar lent, so a small high-rate loan has limited influence on the bank-wide figure compared with a large…
The document questions whether mean-variance optimization (MVO) works in practice and whether it explains the underfunding of defined benefit pension plans. The response argues that Markowitz portfolios can be numerically unstable, especially beyond two…
The document explains how to obtain forward rates when Bloomberg displays LIBOR swap-curve information. It distinguishes forward-starting swaps from spot swaps and points to Bloomberg’s forward-analysis functions for swap rates, while separate functions are…
The document raises a pricing question about swaptions referencing overnight benchmarks such as SONIA, SOFR, and ESTR, in the context of the transition away from LIBOR. It asks how pricing differs from the classical single-curve swaption formula when the…
The document examines two expressions for pricing a security that pays cash at two dates. One discounts the later payment using the two-year spot rate; the other discounts an expected year-one resale value using a future one-year rate. The apparent…
The document addresses two credit default swap questions: whether a default involving debt other than the named reference obligation can trigger protection, and which debt may be delivered under physical settlement. It explains that a credit event on another…
The document explains how to infer an interest rate from a future cash payment and its present value. In the example, a payment of 400 due in one year has a present value of 320. The accepted answer frames the calculation through the relationship between…
The document distinguishes ex-post risk premium, which can be calculated from realized returns, from ex-ante risk premium, which must be estimated and is much more difficult to predict. If the premium is assumed constant, a long historical sample can provide…
The document investigates why a QuantLib curve built from EONIA overnight index swaps differs from a Bloomberg curve. The accepted answer points to several setup choices that can affect calibration: using the appropriate fixed-leg payment frequency,…
An extinguisher swap terminates when a specified credit event occurs. The discussion distinguishes bilateral structures, which terminate regardless of mark-to-market, from unilateral structures tied to a threshold, and describes zero-recovery and…
The document responds to questions about standard credit default swap contracts, interpreting very high quoted spreads, finding bank spread data, and assessing counterparty creditworthiness. It cautions that derivatives are flexible rather than fully…
The document explains how to estimate the exercise probability for a European callable interest rate swap with one call date. In a normal volatility model, the probability is framed as the chance that the forward swap rate for the remaining swap life falls…
The document addresses how to obtain a simulated term structure from short-rate paths in the one-factor Hull–White model. Rather than providing formulas for calibrating theta and the A(t) and B(t) functions, the accepted answer proposes integrating each…
The document considers how to calculate an interest rate for a fixed-rate loan portfolio over periods shorter than a year. Its example uses a loan repaid in equal monthly installments, with each payment divided into interest and principal repayment. The…
The document explains why a fixed-rate bond coupon can accrue through an unadjusted schedule date while its cash payment occurs on the next business day. In the example, May 1 is a holiday: the coupon accrual period still ends on May 1, but the cash flow is…
The document asks whether a firm’s coupon rate or a bond’s recent market price should determine the cost of debt used in a WACC calculation. The response explains that bond prices reflect both changes in general interest rates and changes in the issuer’s…
The document considers which interest rates to use when testing covered interest rate parity between the euro and the US dollar. Its central point is that unsecured interbank rates, such as LIBOR and Euribor, include bank credit risk premia that can differ…