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 distinguishes two ways to evaluate a project when debt financing and repayments appear in the cash-flow model. Free cash flow to the firm includes cash flows available to both debt and equity holders, so it is discounted using the weighted…
The document explains why a bank can find low-credit-risk lending or securities consuming under a leverage ratio. Traditional risk-based capital rules assign different capital charges according to credit risk, while the leverage ratio described here compares…
The document distinguishes running basis points from upfront basis points in bond risk and carry calculations. Upfront basis points translate a running spread into a price-risk amount using DV01, the dollar value of a one-basis-point yield move; the…
The document considers whether the yield difference between on-the-run and off-the-run bonds of similar maturity could support a mean-reversion trade. It explains why the spread may reflect persistent differences in liquidity and investor demand: new issues…
The document derives bounds on the derivative of a call price with respect to strike. It compares calls with nearby strikes and uses the fact that, at maturity, the difference between their payoffs is bounded by zero and the negative of the strike gap.…
The document explains how forward rates relate to the dates in an interest rate swap's floating leg. It distinguishes payment dates, accrual dates, reset or fixing dates, and rate valuation dates. The rate being estimated is associated with the period over…
The document asks how to interpret the time-dependent drift parameter in the Ho-Lee short-rate model while calibrating a discrete interest rate tree. In the described procedure, each period's parameter is chosen so that model prices under the risk-neutral…
The document distinguishes two UK short-rate series that may appear similar but represent different quantities. Treasury bill observations are described as average discount rates from weekly tenders for 91-day bills. The government curve’s three-month spot…
The document summarizes ways to relate bilateral valuation adjustments to unilateral CVA and DVA. One explanation frames bilateral counterparty risk through scenarios in which both parties survive, the counterparty defaults first, or the institution defaults…
The document considers how market participants might proxy expected economic growth, taking GDP as the likely but not uniquely defined target. It points to the yield curve, especially the spread between ten-year and three-month Treasury rates, as an…
The document describes the collateral choice option as an expectation involving the time integral of the maximum among several spread processes, typically modeled as Gaussian. It notes that this expectation is difficult to calculate and that a cited…
The note examines the default intensity in the Black–Cox structural credit model, where default occurs when a geometric Brownian firm value first reaches a fixed absorbing barrier. It rewrites the distance to default as a Brownian motion with drift and gives…
The document poses a calibration problem for a one-factor Hull–White short-rate model with constant volatility and mean-reversion speed, using historical zero rates. It proposes inferring mean reversion from the relationship between the historical…
The document describes several ways to select bonds for a butterfly trade, depending on the rationale for the position. For a relative-value or mean-reversion trade, a trader can assess whether the middle maturity looks unusually rich or cheap against the…
This explanation examines the shift parameter in a lognormal model for forward interest rates. It writes a caplet payoff in terms of the shifted rate and strike, assumes the shifted forward follows a lognormal process under the appropriate forward measure,…
This document investigates inconsistent results when fitting a lognormal SABR volatility smile with pySABR. In the failing example, the fitted parameters produce volatility estimates that diverge sharply from the observed quotes when reused in another…
The note explains that the Black model does not depend on the standard spot-to-forward relationship in which the forward price equals spot grown at the risk-free rate. Currency futures are given as an example where borrowing and lending in the two currencies…
The document explains how to project a mortgage’s expected cash flows when prepayment and default can end or alter scheduled payments. It favors using conditional event probabilities at each period, conditional on the loan remaining active up to that point.…
The document gives brief definitions of two terms encountered in derivatives pricing and volatility smile fitting. “Pillars” generally refers to maturities or expiry dates used as reference points, a usage associated with fixed income. A pricing or…
The document asks how the upfront amount for a credit default swap is determined and why the cash exchanged at settlement differs from the quoted principal amount. The questioner understands the principal as the difference between the present values of the…
The document poses an instrument-selection problem: how to hedge an interest-rate differential sensitivity produced by a statistical model of spot FX returns on an intraday basis. The author seeks low trading costs and near-continuous availability, with an…
The document examines a one-factor Hull–White short-rate simulation and explains why a one-year time step can produce poor paths. Euler–Maruyama approximates the drift over a step of length h and scales the random shock by the square root of h; the presented…
The document explains why an instantaneous forward rate is generally not the ordinary risk-neutral expectation of a future short rate when rates are stochastic. It corrects a derivation that differentiates the expected discount factor as though the result…
The document asks why the instantaneous volatility of a simply compounded forward rate is defined through the quadratic variation of its logarithm rather than the rate itself. The response interprets this as percentage volatility: changes in the log of a…