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 clarifies the distinction between deterministic and random simple processes in stochastic calculus. A deterministic process has values that are known in advance, while a random process has values that depend on uncertain future outcomes. This…
The document concerns fitting a Libor Market Model volatility function to market observations by minimizing a nonlinear least-squares objective over five parameters. The calibration has positivity conditions, including a combined constraint on two…
The document explains why the repo rate on a scarce, specific bond can fall when demand to borrow that bond rises. It corrects the intuition that bond buyers are borrowing more cash and therefore should pay a higher rate: in a repo transaction, one party…
The document asks whether a one-day P/L estimate based on sensitivity to a zero-rate curve includes the effect of time passing. The setup recalculates the curve on the next day using the same bonds, whose remaining maturities have shortened, and applies the…
The note compares a discounting adjustment expressed as the expected discounted integral of the difference between a target rate and a base rate, multiplied by exposure, with a formula attributed to Piterbarg for a fully collateralized position. The apparent…
The document asks why binomial short-rate models often assign equal risk-neutral probabilities to up and down moves, and whether model properties such as no drift or a flat volatility term structure depend on that choice. It highlights a concern: if changing…
The document addresses whether different fixed rates in a fixed-for-fixed currency swap create a free return for one counterparty. Its explanation emphasizes that each party pays interest on a principal denominated in its currency and returns that principal…
The document considers whether the leading principal component of historical interest-rate changes can serve as the volatility curve for calibrating a Hull–White or Black–Derman–Toy tree. It contrasts estimating a separate standard deviation at each tenor…
The document asks where forward prices can enter a Monte Carlo derivatives-pricing workflow. It describes a system that accepts calibration instruments, a model choice, initial underlying levels, a yield curve, and a forward curve. The follow-up clarifies…
The discussion addresses how to obtain historical Eurozone fixed-income index data for a multi-factor study of European bond funds when Bloomberg is unavailable and replacement ETFs lack sufficiently long histories. The response names Yieldbook index…
The document asks why long-horizon realized excess returns on agency mortgage-backed securities may fall below their average option-adjusted spread over duration-adjusted Treasuries. The response attributes the gap to borrower prepayment behavior changing…
The document asks how to estimate the dollar impact of a change in cross-currency basis for a portfolio of swaps hedging loans or bonds. The answer offers a rough approximation: use the book’s weighted average tenor, with each trade weighted by the notional…
The document explains the sharp decline in high-yield corporate bond ETFs during the Great Recession despite falling interest rates. The key distinction is between Treasury yields and the yields investors demand on risky corporate debt. A high-yield bond’s…
The document explains how to interpret a credit default swap (CDS) spread when the contract pays a standardized coupon. The quoted par spread represents the annual premium that would make a new contract’s value zero; it is not itself the upfront price. The…
This discussion assesses how much quantitative finance is covered by actuarial professional exams. It describes a progression from foundational financial engineering topics, such as portfolio theory, asset pricing, binomial models, stochastic calculus, and…
The discussion gives several reasons pension funds may hold bonds even when yields are near zero. Some investors expected rates to remain low or turn negative, so bonds could still appreciate if yields fell. Evaluating that choice only after rates changed…
This explanation distinguishes quoted prices from the amounts actually paid for Treasury bills and bonds. For Treasury bills, the quoted price is calculated from the cash price using a convention based on a nominal value of 100 and the bill’s remaining…
The document considers whether a risk system can simplify a multicallable bond by treating an assumed call date as its maturity. For small interest-rate sensitivity calculations, one possible shortcut is to identify the exercise date associated with yield to…
The document explains how to aggregate duration and yield when a fixed-income portfolio contains long and short positions. Its core method is a weighted sum of each position’s duration, using signed weights based on position market value and a chosen…
The document explains why realized index fixings must be supplied when building or using interest-rate curves for swaps with floating coupons. A fixing is needed when the index’s fixing date has already passed by the valuation date, even though the coupon…
This question asks whether a bilateral credit support annex can define different eligible collateral for each counterparty. Its example has one party posting US dollars or Treasury securities and the other posting euros or German government bonds. It also…
This discussion explains how to interpret at-the-money swaption volatility quoted under normal and Black conventions. Normal volatility is expressed in rate units, commonly basis points, while Black volatility is relative to the forward swap rate. The…
The document asks how collateral remuneration, repo, and unsecured bank funding rates relate in post-crisis derivatives pricing, referring to a paper by Vladimir Piterbarg. It defines the collateral rate as the rate paid on posted collateral, the repo rate…
The document describes building a six-month sterling Libor yield curve in QuantLib from a deposit quote and swap rates, then asks how to incorporate forward rate agreements. It shows the existing curve-building setup and its resulting spot-rate table,…