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 that a numeraire used for pricing does not always need to be a traded asset. It presents the risk neutral pricing relation under a measure associated with the chosen numeraire, then describes expressing derivative and underlying prices…
The document considers the impact of replacing established overnight discount rates with new risk-free rates on uncleared swaptions. It asks whether valuation changes should be compensated, distinguishing temporary changes in a swap’s discounted value from…
The document explores how a forward interest rate follows from the prices of zero-coupon bonds with different maturities. It proposes holding a long position in the longer-maturity bond and a short position in a scaled amount of the shorter-maturity bond,…
The document examines why a finite-difference bond convexity calculation can differ substantially from a market quote. Its central explanation is that convexity depends on how yield is expressed: using yield in percentage points versus decimal form changes…
The document addresses whether an overnight index swap’s fair rate and PV01 can be calculated without constructing an OvernightIndexedSwap object in QuantLib. The response cautions that reproducing the calculation from a curve alone is complex and would be…
The document explains why comparing two delivery months of a bond future generally cannot isolate the underlying bond’s price using a simple carry relationship. Futures pricing depends on the cheapest-to-deliver bond, its conversion factor, the repo rate…
The document presents a two-factor pricing setup in which the stock price follows a diffusion with constant volatility and the short rate follows a mean-reverting process. Assuming the two Brownian drivers are uncorrelated, the response gives a generalized…
The question compares a bond valuation and duration calculated under continuous compounding with a modified-duration calculation under semiannual compounding. It asks why the initial price in the second calculation remains the same when the yield is…
The document lays out a curve-construction problem: derive discount factors for Australian-dollar cashflows collateralised with US-dollar cash. It lists available Australian OIS, bank-bill swaps, basis swaps between bank-bill tenors and OIS, and…
The note addresses why Treasury basis traders commonly express a bond-to-futures hedge using conversion factors rather than a DV01 ratio. Its central point is that the two approaches are equivalent when the futures contract’s DV01 is calculated from the…
The discussion explains why a five-year interest rate swap can have a rate sensitivity close to that of a par five-year Treasury. In the example, a 15 basis point rate move changes the Treasury’s value by roughly the present value of a 15 basis point…
This note asks about buying an off-the-run Treasury bond that is deliverable into a bond futures contract but is not currently the cheapest to deliver, while shorting the futures. The proposed relative-value rationale is that the cash bond may richen against…
The document explains why a caplet whose payoff is fixed and paid on the LIBOR fixing date is more involved than one paid at the end of the underlying accrual period. For the latter, the forward rate is modeled as a martingale under the matching maturity…
The document presents a proposed closed-form value for a convertible bond under a two-factor setup involving the stock price and a Vasicek-like interest-rate factor. The cited response expresses the value in a Black-style form, using the stock price, a…
The document asks how to choose a long-run horizon when modeling euro-area inflation for a pension fund balance sheet. Because the inflation series is treated as non-stationary, the author proposes modeling its differences with a VAR and adjusting their…
The document explores why investors may demand additional yield for holding bonds that are difficult or costly to sell. It distinguishes the value of superior liquidity, which can support a higher bond price and lower yield, from compensation for expected…
The document examines why the relationship between Japanese government-bond yields and equity returns may change sign. The question proposes measuring rolling or dynamic conditional correlation between the Nikkei 225 and ten-year government bonds, then…
This discussion describes fitting a SABR volatility surface to options on SOFR futures. The workflow solves for implied Black or Bachelier volatilities at selected out-of-the-money strikes, calibrates SABR with QuantLib, adjusts parameters by hand, then…
The document describes how collateral currency affects discounting when the payment currency differs. For a USD cash flow collateralized in EUR, one approach is to use a USD discount curve adjusted by the cross-currency basis. The answer illustrates this by…
The document addresses a Bloomberg settings question about valuing interest-rate caps and floors when the model is labeled Black-Scholes-Merton and volatility is set to Normal. The response says those choices are not combined: Bloomberg changes the settings…
The document explains two influences on bond performance: changes in interest rates and shifts in credit spreads. When economic conditions improve, riskier high yield bonds may fare better relative to investment grade bonds as their credit spread narrows; in…
The document asks what “General IB2 Restriction” means in a description of Basel II credit risk approaches. The response interprets IB as Islamic banking and explains that unrestricted investment deposit holders share some investment risk, which can affect…
The document explains how to read implied volatility quotes for a one-year-into-five-year SOFR swaption under Bachelier and Black conventions. In the normal model, a quoted volatility of 136 corresponds to a one-year standard deviation of about 1.36…
This document raises a question about the relationship between three-month Euribor and the ECB deposit facility rate. It observes that unsecured term borrowing rates had remained below the rate banks could receive on central-bank overnight deposits, and asks…