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
This note explains how to read forward-rate volatility and drift in the Heath–Jarrow–Morton framework, starting from instantaneous forward-rate dynamics and zero-coupon bond prices. It gives the link between bond-price volatility and forward-rate volatility:…
The document asks how to adjust discounting and projected forward rates when valuing collateralized derivatives under a CSA currency with no directly quoted swap or OIS curves. Its response says that FX forwards, local-currency rates, and collateral discount…
The document asks how to estimate the parameters of a coupled square-root diffusion model for an interest rate and its stochastic volatility. It considers rearranging discretized equations for VAR or OLS estimation, but recognizes that these transformations…
The document discusses which instruments should be used to build a swaption volatility surface when calibrating to a particular underlying swap. The answer recommends matching the swaption underlying to the swap being calibrated, so that the forward rate…
The document explains why a commonly quoted All Weather allocation may not show equal risk contributions when measured with portfolio software. According to the accepted answer, the weights came from an interview describing an unleveraged sample portfolio…
The document asks whether stocks with lower historical return standard deviation tend to earn higher future returns, and whether this finding is broadly established. It distinguishes this measure from idiosyncratic volatility and cites two studies that…
The document asks which swap leg is priced first when structuring a new interest rate swap with zero net present value at inception. It considers two equivalent ways to frame a quote: specify a desired fixed rate and ask what floating payments correspond to…
The document raises a pricing issue for an interest rate swap whose floating leg averages rates observed daily during each accrual period. The payment is based on the average of forward rates for short intervals, discounted to the payment date. Since…
The document works through a hedge for a company planning to issue 180-day commercial paper. Because the company benefits from higher short-term rates when issuing the paper, it can short Eurodollar futures; the example scales the position by comparing the…
The document explains why a less liquid corporate bond will often have a wider bid–ask spread than a comparable, easier-to-source bond. Investors may require compensation for the risk of holding an asset that could be difficult to sell, while the bond’s…
The document offers a qualitative guide to who commonly trades interest rate swaps and related US Treasury instruments at different points on the curve. It associates short-dated swaps with macro traders, hedge funds, corporates hedging loans, and banks…
The note answers whether principal-only mortgage bond prices or yields rise when interest rates fall. Its conclusion is that prices rise, with two mechanisms contributing. First, the usual bond price relationship applies: lower market rates increase the…
The document explains how Libor fixings work when an interest rate swap pays every six months but references a three month Libor rate. Libor is typically set in advance, shortly before the start of each accrual period, and paid in arrears. In the example,…
The question compares a probability shown by the CME FedWatch Tool with a calculation based on a fed funds futures price, the effective rate for part of the month, and the number of days affected by a rate decision. The author finds that the calculation…
The document poses a question about the relationship between instantaneous forward rates and the short rate in a zero-coupon bond framework. It writes the bond price in two forms: as the exponential of the negative integral of forward rates, and as the…
This document presents a method for estimating the parameters of an Ornstein–Uhlenbeck process from an equally spaced historical time series. It defines the process through a mean-reverting rate, a long-run level, and a volatility term, then gives formulas…
The discussion concerns setting settlement days explicitly when constructing QuantLib swap rate helpers for a USD LIBOR curve. It notes that the default can come from the index’s fixing days, and the original question asks how to use zero settlement days…
The discussion examines whether step-up bonds are less sensitive to rising market rates than comparable fixed-rate bonds. It argues that the comparison depends on the benchmark: against a bond paying only the initial, lower coupon, a step-up bond can have…
The document addresses why a futures contract’s notional value can be difficult to define, using a Eurodollar futures position as the motivating example. Its main point is that notional is not necessarily governed by one universal formal definition. In…
The document explains why a constant maturity swap coupon linked to a long tenor swap rate cannot be valued simply by substituting the forward swap rate as the expected coupon. In the example, one leg pays a short term LIBOR rate and the other pays a ten…
The document asks how to calculate the return when a bond is purchased and sold before maturity. In the example, the investor pays $980, receives a semiannual coupon, and sells the bond six months later for $1,025. The proposed approach combines the sale…
The document explains the Act/365 Canadian Bond day count convention used for some Canadian government and corporate bonds. It summarizes the cited convention’s year-fraction rules for regular coupon periods and settlement accrued interest, then examines…
The document asks why a bond priced at par, with a coupon tied to SOFR plus a fixed margin, can have a calculated z-spread different from that margin when the benchmark curve is also SOFR. The example describes a five-month bond with monthly payments and a…
The discussion explains the contract convention behind the $25 DV01 of a Eurodollar futures contract. The contract quote is 100 minus annualized three-month LIBOR, so a one-basis-point rate move corresponds to a small change in the quoted price. The…