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 concerns estimating asset value and asset volatility in the Merton structural credit model by solving a nonlinear system with Newton–Raphson. The system relates equity value to a Black–Scholes-style call expression and relates equity volatility…
The document distinguishes overnight index swap rates from term Libor rates. OIS rates reflect market pricing of compounded overnight funding over a horizon and can inform expectations about future overnight rates, but they do not by themselves reveal the…
The document explains how a swap’s floating-leg value can be written using forward Libor rates rather than future realized fixings. Its method starts with the risk-neutral present value of a payment, changes to the forward measure associated with a…
The document asks how to measure the time for a Vasicek short rate to move halfway toward its long-run mean. It separates the deterministic mean-reverting part of the stochastic differential equation from its random component and relates the decay of a…
USD LIBOR refers to the rate at which banks active in the London money market estimated they could borrow unsecured funds in US dollars. Its relevance to dollar instruments comes from the international market for dollar funding: banks can borrow or lend…
Convertible bond duration is difficult to reduce to a vanilla bond formula because rates affect the bond component and can also influence the value and exercise or redemption behavior of the embedded equity option. The most direct method described is to…
The note examines an identity equating ratios of forward rates observed at different dates. It rewrites each ratio using zero-coupon bond prices and the time intervals, then applies the no-arbitrage relationship between bond prices across successive periods:…
The document explains how to translate sensitivities computed in a calibrated interest-rate model into risks with respect to observable market quotes. It considers instruments such as swaptions priced using a short-rate model and Monte Carlo simulation,…
The document asks how very short maturities, such as overnight or one month, are represented on a curve built from swaps whose floating leg resets every three months. The responses emphasize that a one-month par swap referencing a three-month index is not…
The document raises a curve-construction question involving two cashflows at different times: an earlier zero-coupon payment with a stated spot rate and a later coupon with an unknown rate. It asks whether the earlier rate can be used to infer the later…
A contingent claim is a payoff defined at a specified future time. In the example, a zero-coupon bond promises to pay one unit at time two, so its payoff variable at that horizon is represented by X = 1. The payment is the claim’s value at maturity, rather…
The document considers whether exchange-listed rate futures can support an approximate US dollar yield curve when over-the-counter swaps and cash Treasury prices are unavailable. The instruments discussed include Eurodollar futures, Federal Funds futures,…
The document explains bond convexity as the second-order response of price to a change in yield. Starting from a fixed-coupon bond priced as discounted cash flows, it bumps discount rates and expands price around the original yield. The resulting…
The document considers how to separate the effect of a policy-rate cut from the effect of a quantitative-easing announcement on long-term yields. The case is a Polish central bank announcement that combined the two actions, making an event-study estimate of…
The document explains how to combine a base yield curve with a term structure of credit spreads in QuantLib. It notes that the library’s constant-spread curve is a useful model, but a curve built from two separate term structures requires a custom class…
The document describes a beginner's attempt to price a callable fixed-rate bond in QuantLib using a Hull–White model. The question is whether a flat yield term structure set to the bond's market yield is an appropriate input, or whether a more detailed curve…
The document asks whether payment delays in overnight-rate OIS coupons require convexity adjustments when bootstrapping a single-curve SOFR discount curve. It describes a practitioner comparison of Bloomberg curve construction with published OIS formulas:…
The document explains two ways to describe credit spread exposure. CS01 estimates the first-order profit and loss from a one-basis-point spread move, making it convenient to translate a specified absolute spread change into an approximate P&L impact. The…
The document considers whether a market index in euros is appropriate for a market-model event study of corporate credit default swap spreads quoted in US dollars. Its answer suggests that published dollar and euro spreads are often identical or close for…
The document distinguishes two meanings of liquidity risk. One concerns whether assets can be sold or repoed quickly enough to meet cash obligations. The other is the price impact or discount that may arise when an investor must sell an illiquid bond, which…
The document considers whether cointegration between sovereign credit default swap spreads can guide a pairs trade, and how to interpret hedge weights derived from spread levels versus log spreads. Its main response warns that CDS positions do not behave…
The document explains how to calculate net interest income (NII) and net interest margin (NIM) from bank financial statements. NII is interest income minus interest expense, representing the income earned on assets after their funding costs. The example…
The document outlines a bond-curve estimation procedure based on the Nelson–Siegel–Svensson model. Given bond cash flows and prices, the procedure calculates spot rates and discount factors, prices the bonds from those discount factors, and derives…
The document explains a basic approach to calibrating the SABR model to market option volatilities. SABR models the forward rate and its volatility as correlated stochastic processes. The answer uses the model’s approximate implied volatility formula and…