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 how credit default swap prices can provide risk-neutral default probability estimates for valuing a counterparty valuation adjustment (CVA). It frames CVA as discounted expected positive exposure multiplied by the probability of default…
The document considers whether to constrain Monte Carlo interest-rate paths when a calibrated model produces unusually high forward rates. The model described calibrates log-normal skew and mean reversion monthly to a basket of at-the-money swaptions and…
The document explains two ways to express a bond’s spread relative to a par rate curve. A curve-based z-spread or OAS is found by shifting the discount curve until the bond’s modeled price matches a target price. Because this repricing equation generally has…
The discussion challenges a simple rule that declares a mortgage defaulted once a threshold share of payments is missed. A missed payment may be cured, and payment behavior can change as the borrower’s circumstances and macroeconomic conditions evolve.…
The document describes how to price a floating-rate bond with capped coupons in QuantLib. A discounting bond engine alone is insufficient when the cash flows include coupon options: the bond's floating-rate cash flows need an option-aware coupon pricer. The…
The document raises a practical question about implied correlation in a collateralized debt obligation (CDO). In the setup described, market spreads for individual tranches are used with a Gaussian copula model and assumptions about recoveries and default…
The document addresses why a floating-rate note’s duration can correspond to the time until its next coupon payment or rate reset. The response considers the bond immediately after a coupon is fixed, when the next floating reference rate can still change. It…
The answer outlines the main choices involved in building an interest rate model. A model may describe short rates, forward rates, or more complex rates such as swap rates. The appropriate rate representation and model depend on the intended application, the…
The document describes ways to retrieve identifiers for bonds associated with a publicly traded company. Its main programmatic suggestion is to use Bloomberg's Python interface to request reference data for an equity and the bond-chain field, then process…
The answer distinguishes the instantaneous short rate modeled by CIR from a maturity-specific zero rate, which is inferred from the price of a zero-coupon bond. It notes that a model of the short rate generates bond prices and thus a term structure; a single…
The document asks how to give three-month SOFR futures precedence over one-month futures when bootstrapping a term curve alongside SOFR swaps. It describes a practical selection rule: inspect the existing rate helpers for a matching pillar date before adding…
The document explains how to reuse QuantLib rate helpers and a term-structure curve when bootstrapping curves for successive dates. Rather than recreating all helper objects for every observation date, create quote objects and pass handles to them when…
The document addresses how to value an existing repurchase agreement before maturity when market repo rates have changed. Its central point is that, in a repo with daily collateral adjustment to preserve the agreed haircut, changes in the bond’s market value…
The document explains how to adjust a portfolio so its exposure to selected principal components is neutral. It frames portfolio positions and PCA eigenvectors as vectors, with component exposures calculated by projecting positions onto the eigenvectors. For…
The document explains why LIBOR was commonly used as a risk-free rate proxy before the financial crisis and why OIS became the basis for risk-free discounting afterward. Before the crisis, unsecured interbank borrowing was treated as nearly risk-free, and…
The document investigates apparently incorrect signs for Bartlett deltas on options on forward interest rates. It presents code that estimates delta by shifting the forward, adjusting the SABR alpha parameter according to the forward-volatility correlation…
The document explains why a Bartlett delta calculated by bumping a forward and repricing under SABR can have the opposite sign from a conventional Black delta. Black delta holds implied volatility constant, while the finite-difference calculation in the…
The document frames how liquidity might be incorporated into a credit default swap model built around a stochastic default intensity. Survival probabilities are derived from the integrated hazard rate, while the CDS value is the difference between protection…
The document explains how to hedge an amortising interest rate swap using vanilla swaps, and why matching every fixed cashflow does not necessarily match the floating-rate exposure. Its main principle is to hedge interest-rate risk rather than force every…
The answer explains the basic structure of an FX swap as two opposite currency transactions on different dates. Depending on the dates, the pair may consist of a spot transaction and a forward transaction, or two forward transactions. It also notes that the…
The note shows how to infer a market-implied probability of a Federal Reserve rate hike from a monthly fed funds futures settlement. Because the contract settles against the average effective federal funds rate across the month, its price reflects both the…
The document discusses whether futures rolls can distort short-end yield curves built from nearby interest rate futures. A roll may create short-lived imbalances that affect observed futures prices and, in turn, the rates inferred from them. The answer…
The document considers zero-coupon bond prices when the yield is modeled as lognormal under a forward measure. With the bond price expressed as a function of yield and time to maturity, the resulting price distribution is a nonlinear transform of the yield…
The document addresses whether an interest rate swap must mature on a standard tenor or can end on a date chosen by its counterparties. Its answer is that an OTC swap is bilaterally negotiated, so the parties can agree to a nonstandard maturity date,…