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 why Treasury spline curves fitted by different firms can produce different estimates of relative value. Curve construction involves choices about which bonds to include, how to weight observations, where to place knots, how much…
The document explains the drift term in a simple short-rate stochastic model and relates it to a broader family of interest-rate models. In the stated model, the drift is a constant contribution to the rate’s expected change over time, while the random term…
The document raises a pricing question about bonds with constant-maturity swap (CMS) coupons in euros, where interest rates may be negative. It asks whether the convexity adjustment from Hull, which assumes lognormal rates, can be adapted to a normal-rate…
The document explores estimating daily volatility for government bonds from open, high, low, and close prices. It notes that a daily high-low range can distinguish sessions with larger and smaller intraday fluctuations, then identifies the Garman-Klass…
The note discusses the conditional-expectation formula that values a derivative as its future payoff discounted at the short rate under a risk-neutral measure. Its key distinction is between using a measure once it has been specified and establishing that…
The note applies the first fundamental theorem of asset pricing to explain why an attainable claim has the same value under every martingale measure. Given a replicating strategy, the theorem expresses its value at any time as the conditional expectation of…
The document explains what serves as collateral in a collateralized loan obligation. A special purpose vehicle buys leveraged loans and issues debt tranches as well as a junior equity security. The loan pool is held by the vehicle; the manager is paid to…
The document clarifies how USD LIBOR quote dates relate to loan periods and how business-day conventions affect swap dates. A non-overnight tenor quote is described as a forward rate whose accrual period begins two business days after the curve’s anchor…
The document considers an asset-backed security with a long legal maturity and an earlier anticipated repayment date. Missing that date triggers a higher interest rate and a full cash sweep. It asks how to interpret those terms when valuing the debt,…
The document sketches how to construct spot discount factors from short-term deposit rates and a one-year swap rate. For deposits, it uses simple interest with the stated day-count fractions to convert each quoted rate into a discount factor. It then takes…
The document asks why a fixed coupon bond appears to trade near its face value as maturity approaches, even though discounting its final principal and coupon at the stated coupon rate seems to imply a price above par. It sets out a three-year par bond…
The document discusses how bond indices handle securities that mature or are redeemed between scheduled rebalances. It distinguishes indices rebalanced daily from benchmarks rebalanced monthly, noting that performance is compared with the monthly rebalanced…
The document clarifies what a mid-curve swaption measures and how it can help infer forward volatility. A mid-curve swaption measures volatility of a forward-starting swap rate, but that is not itself the forward volatility of an option whose strike will be…
The document examines how to reproduce longer-maturity continuously compounded zero rates from par OIS rates in a textbook example. Short maturities can be converted from their quoted compounding conventions directly, but the two-year and five-year…
The document explains why a bond with a long stated maturity might have a single call date only a few months before maturity. Its proposed explanation is the Liquidity Coverage Ratio (LCR), a bank regulation requiring institutions to hold liquid assets…
The document compares replication and no-arbitrage arguments for pricing a forward on an asset that pays no income. With a single fixed interest rate, holding the asset can be replicated by a forward position and cash, yielding a forward price that grows the…
The document considers whether recent historical bond-price volatility is suitable as the volatility input for pricing a bond option with the Black 76 model. The preferred input, when available, is implied volatility: the value that reproduces the option’s…
The document asks why risk-neutral valuation discounts cash flows using a rate described as risk-free, even when interest rates themselves can be stochastic. The response offers a market-practice explanation centered on collateralized derivative trades:…
The document examines how business-day rolling of bond payments can affect coupon amounts, accrued interest, and yield to maturity. It contrasts unadjusted dates, often paired with 30/360 or Actual/Actual ICMA conventions for fixed-coupon bonds, with…
The document discusses common issues when valuing SOFR interest rate swaps in QuantLib. One problem is missing historical overnight index fixings: when valuation occurs after a swap has begun, the index needs the past observations required to determine…
The document asks how to value the asset return leg of a total return swap referencing a convertible bond when a convertible bond mark-to-market pricer is available. It proposes decomposing the leg into coupon cash flows, the change in bond value at swap…
The document compares holding a bond ETF with maintaining a long bond futures position, focusing on financing, collateral, benchmark fit, tracking, and operational demands. An ETF provides exposure to an actual managed bond portfolio, with management fees…
The document addresses whether a swap’s fixed rate remains independent of a spread deducted from its floating leg, such as LIBOR minus a stated amount. The answer explains that the par fixed rate is set so the swap’s fixed and floating legs have…
The document asks what “NPV of the deliverable swap” means in the quoted price of a MAC swap future. It contrasts the discounted-cash-flow meaning of net present value with an expectation of future cash flows, using a stock futures price as an analogy. The…