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 derives the no-arbitrage forward price for a non-dividend-paying stock when interest rates are stochastic. The forward delivery price equals the current stock price divided by the price of a zero-coupon bond maturing on the delivery date. That…
The document examines why sterling might rise after a higher UK inflation release, despite the loss of domestic purchasing power. Expected central bank rate increases can support a currency through interest rate expectations and capital flows, while…
The document examines whether a longer-dated futures contract on the same underlying should be more expensive than a shorter-dated one. It first gives the forward price under deterministic interest rates and continuous dividends: spot value is multiplied by…
The document raises a question about applying adjoint algorithmic differentiation (AAD) to an interest rate swap pricer. The author has been testing AAD on Black–Scholes call options but reports that the resulting Greeks do not match expected values, and…
The document asks how to decompose nominal returns on inflation-protected bonds into carry and rolldown. Its proposed starting point is to project inflation index levels and hold the nominal discount curve fixed, then compare the bond’s present value now…
The document examines whether interest rate swap valuation should include cash flows falling between the valuation date and the spot date. Some vendor approaches treat those payments as historical and effectively report a spot-date value, which can make a…
The document frames a benchmark construction problem for a basket of coupon bonds denominated in the same currency but differing in maturity, face value, coupon, and outstanding amount. It asks how to summarize the basket with an index yield, and considers a…
The document concerns estimating a company’s probability of default for an expected loss calculation under IFRS 9. It notes that physical default probabilities can be estimated in many ways, with approaches differing in complexity and data requirements. It…
The discussion questions how to define carry for a fixed-for-floating SOFR swap when its compounded floating payment is not known in advance. One answer argues that a simple difference between the next fixed and floating payments is not a useful standalone…
The discussion considers whether CreditGrades can estimate a one-year CDS spread and survival probability for a large Canadian bank when its CDS market is illiquid. The model is described as representing a firm through stochastic asset value and a debt…
The document explains how a derivative’s expected value change follows from its self-financing replication in a framework with different rates for unsecured funding and collateral. The portfolio holds a delta position in the underlying and a cash account;…
The document distinguishes two ways to describe a bond’s spread over a reference curve. I spread subtracts an interpolated curve yield at the bond’s maturity from the bond’s yield, making it a quick indicator that is relatively simple to calculate. Z spread…
The document considers whether a Federal Reserve rate hike can be translated into an expected change in the 10 year Treasury yield, and which market instruments might support an estimate. It emphasizes that the relationship is not mechanical: a hike does not…
Black 76 is presented as a standard pricing approach for interest rate options such as caps, floors, and swaptions. It models a forward rate as lognormally distributed over a single horizon under a forward measure, making it a workable starting point for…
The document lays out a practical validation checklist for a one-factor mean-reverting interest rate lattice. Calibration checks include whether the model can fit coterminal instruments and caplets, represent skew where needed, handle zero-coupon swaptions,…
The document compares ways to express a 2s10s steepener, including cash bonds, interest rate swaps, futures, constant maturity swaps, and forward-starting positions. A cash bond trade offers a direct view but requires decisions about which bonds to hold,…
The document asks how to distinguish the large-portfolio loss results associated with the Vasicek credit risk model and Gordy’s foundation for ratings-based bank capital rules. It focuses on whether Vasicek establishes convergence of portfolio loss to a…
The document asks whether a closed-form conversion exists between an asset swap spread and an I-spread. It describes the I-spread as a bond yield spread against a matched-maturity vanilla swap rate, associated with credit exposure after hedging interest-rate…
The document distinguishes volatility measured across multiple simulated paths at a given horizon from volatility measured through time within individual paths. It considers return paths whose increments may be dependent, using rating-transition bond…
The document presents an exercise about a consol bond that pays one unit of cash at every future period while the market yield is constant across maturities. It asks for the bond’s price, duration as an infinite series and in analytical form, and convexity.…
The document asks how to price a compound coupon bond, which pays principal and accumulated interest at maturity, under the Hull-White short-rate model. It starts from the model's zero-coupon bond pricing approach and proposes valuing the maturity payment…
The document explains how to derive discount factors from quoted OIS swap rates under an assumed annual fixed-coupon schedule. It starts by converting the one-year rate to a discount factor, then uses each longer-maturity par swap equation to solve for the…
The document examines how to interpret clearing-house interest rate swap and overnight indexed swap quotes when bootstrapping discount and forward curves. The response says the three-month LIBOR swap rates from CME and LCH appear broadly comparable, with CME…
The note asks whether forecasts of higher 10-year Treasury yields should already be reflected in the current yield. Its answer distinguishes the spot yield from forward yields: forward yields are used to describe market-implied rates for future periods. When…