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 pricing question about the relationship between SR3 SOFR futures and SOFR swaps when financing and variation-margin effects are assumed negligible. It observes that a swap coupon payoff tied to the future rate and a futures…
The document asks how to translate a spread option’s sensitivity to spread volatility into sensitivities to the volatilities of its two component rates. It gives the normal-model spread variance as the sum of the component variances less twice their…
The document explains how to interpret forecasting rates when pricing collateralized interest rate swaps with separate discounting and projection curves. Under OIS discounting, market prices for at-the-money Libor swaps imply expected forward Libor rates…
The discussion distinguishes a swap's fixing date from its effective date when selecting the forward swap rate associated with a future payment. The example describes a swap that fixes at time T, becomes effective two days later, and pays after a further six…
The document explains why banks with reserve or liquidity shortfalls borrow from banks with excess funds. It identifies differences in banks’ deposit and lending activity, customer withdrawals, payments between banks, and changing loan demand as sources of…
The discussion outlines how to approach building a zero curve from a par curve. It emphasizes starting with the pricing logic: use prices of tradable instruments to derive discount factors or zero rates while keeping the resulting forward estimates arbitrage…
The document compares a simple annualized return calculation for short-term discount instruments with an effective annual yield that assumes proceeds can be reinvested at the same rate. The distinction is compounding: a noncompounded annualization scales the…
The document considers whether US banks can replace domestic Fed funds borrowing with eurodollar borrowing when they need reserves. The response agrees that dollar transfers ultimately affect reserve accounts at the Federal Reserve, while distinguishing that…
The document explains why two bonds with the same DV01, such as short and long tenor bonds, may still carry different risk. DV01 measures the approximate price change for a small change in yield, but translating that sensitivity into risk also requires an…
The question compares convexity adjustments for three-month FRA or LIBOR futures, overnight indexed swap futures, and federal funds futures. It asks whether lower volatility in the overnight rate implies a smaller adjustment, and why federal funds futures…
The document asks how to implement the one-factor Hull–White short-rate model described in a cited paper and whether an R package supports it. The replies point readers toward QuantLib for C++ and RQuantLib for R, presenting them as possible implementation…
The document asks why finance commonly expresses interest and growth with continuous compounding, despite the idealization of infinitely frequent compounding. Its answer emphasizes that continuous and discrete return conventions can be converted into one…
The document addresses how to value an existing FX forward by imagining an offsetting forward that leaves a net future cash flow in one currency. Its central point is that the appropriate discount rate depends on the collateral arrangement. For dollar cash…
The document asks whether cash-settled bond futures have a carry effect comparable to that of physically settled contracts. Physical delivery can connect futures pricing to a deliverable bond, making coupon income and financing costs relevant. By contrast,…
The note explains why two Excel YEARFRAC calculations using the 30/360 basis return the same result when their date pairs are each one calendar day apart. Under the described interpretation, YEARFRAC computes the year fraction from the days between the…
The note asks how to generalize duration measures when spot rates move nonparallel to one another. It identifies Fisher–Weil duration as a generalization of Macaulay duration for changes expressed through the spot curve, then asks how to represent arbitrary…
The document explains why a swap may specify a fixed payment against a floating rate plus a spread, rather than expressing the deal as a lower fixed rate against the benchmark alone. The two forms are equivalent only under assumptions about matching payment…
The document asks whether a hybrid interest-rate and stochastic-volatility model can use a deterministic, time-varying volatility for its Hull–White interest-rate process instead of constant volatility. The answer says this extension can be made by…
The document considers whether an increase in the money supply necessarily prevents prices from falling, in the context of a macroeconomic equation involving government debt, fiscal balances, interest rates, and the price level. The answer challenges the…
The document clarifies that yield to maturity is the internal rate of return implied by a bond’s current price and promised cash flows. It is a comparison measure, rather than a guaranteed realized return at a particular investment horizon. The investor’s…
The document explains how to define and estimate a portfolio yield spread relative to a risk-free rate. For bonds priced at par with a common maturity, the portfolio’s coupon yield can be derived from the weighted coupons, then compared with the risk-free…
The document asks how to estimate the mean-reversion parameters of Ornstein–Uhlenbeck and Cox–Ingersoll–Ross style processes from a state-space model. It distinguishes the constant-volatility OU process from a process whose volatility depends on the state,…
The document compares two approaches to valuing an interest rate swap’s floating leg. A traditional shortcut treats the leg as a par bond worth its notional immediately after a floating payment, while accounting separately for the first known coupon. This…
The question examines whether prices of two zero-coupon bonds, with different maturities and the same face value, imply an arbitrage opportunity. It challenges the idea that differing maturities alone prevent arbitrage: arbitrage analysis instead compares…