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 raises a modeling concern about applying historical-return bootstrapping to a government bond product under the PRIIPs Category 3 market-risk measure. A bootstrap based on past returns may project prices that do not reflect the bond’s…
The note explains how changing from the bank-account numeraire to a zero-coupon bond numeraire changes the drift of the Vasicek short rate. In a one-factor Brownian setting, the bank account has zero diffusion, while the bond price has diffusion proportional…
The document compares duration and convexity calculated for a zero-coupon bond represented in QuantLib as either a dedicated zero-coupon instrument or a fixed-rate bond with a zero coupon. With the same maturity, settlement date, and zero yield, the reported…
The document clarifies the distinction between an instantaneous short rate and a continuously compounded spot rate for a particular maturity. In a short-rate model such as Vasicek, the instantaneous rate is a theoretical rate over an infinitesimal interval.…
The document explains why reported yields on defaulted Greek government bonds can become meaningless. Yield is calculated from promised future cash flows, but after default those payments are no longer assured; the instrument is better understood through its…
The document discusses selecting discount rates to estimate the fair value of a municipal bond when its market price is unknown. One response points to the MMD AAA general-obligation, non-callable zero curve as a standard reference curve and suggests…
The document explains why the Hull–White short-rate model’s zero-coupon bond price at the initial time is independent of volatility and mean reversion. The model is calibrated to the observed market zero curve, so its initial bond prices reproduce that curve…
The document clarifies the valuation signs behind an asset swap spread. In the described arrangement, the investor pays the price of a risky fixed-rate bond and receives its fixed cash flows, while entering a swap that converts those payments into…
The document explains the coupon effect: fairly priced bonds with the same maturity but different coupons can have different yields to maturity when the spot-rate curve is not flat. Yield to maturity compresses a bond’s cash flows into a single rate and…
The note offers a possible historical explanation for a fixed fallback volatility used in a bond option-adjusted spread model. It says term-structure models from that period often relied on constant volatility assumptions, commonly calibrated to realized…
The document outlines post-crisis swap valuation using overnight indexed swap rates for discounting, followed by adjustments for counterparty credit, funding, and other costs. It contrasts this approach with older conventions that used government yields or…
The document examines why principal components extracted from yield curve data may correlate less strongly with familiar level, slope, and curvature measures than a reference study suggests. The questioner fits PCA to par yields and compares the resulting…
The document discusses how to check an option-adjusted spread (OAS) produced by an external calculator. Because OAS results depend on the calculation method and model, verification begins by identifying the stochastic model behind the utility. One can then…
The document asks whether principal component analysis (PCA) is appropriate for interest-rate term structures that appear non-stationary, and whether a Kalman filter would be preferable. Its answer recommends applying PCA to changes in yield-curve points,…
The document considers why a long 7Y1Y payer swaption might show gamma with different signs at the 7-year and 8-year points on a par yield curve. The answer suggests that the reported bucketed exposures may come from repricing after a parallel curve bump,…
The document examines an attempted derivation connecting bond convexity with squared modified duration. It defines modified duration as the negative price sensitivity to yield, scaled by bond value, and convexity as the similarly scaled second derivative.…
The note clarifies that a credit default swap (CDS) spread and a bid–ask spread use the word “spread” for different concepts. A CDS spread is described as the cost of credit protection and, in the answer, as the difference between a credit-risky interest…
The note evaluates whether a bond index price can be approximated by dividing average coupon yield by yield to maturity. It explains that this ratio is appropriate in the limiting case of a bond with infinite maturity, where price is tied to coupon divided…
The document gives a broad overview of securitizing a loan portfolio, including how investor needs can shape tranche design. It describes a common sequential payment waterfall: senior bonds receive principal and interest first, while losses and, where…
The discussion explains a common source of discontinuities when building return series for standardized contracts such as IMM swaps or credit default swaps. A fixed-maturity CDS quote can remain stable across a roll date, while its label as an on-the-run…
The discussion addresses why a Chilean peso swap valuation built from flat discount and projection curves may differ substantially from market valuations. The response recommends constructing a curve from market quotes for the relevant CLP overnight indexed…
The answer contrasts the former Australian dollar LIBOR benchmark with BBSW by describing how each rate was formed. BBSW is quoted by major Australian banks and is based on prices for discounted securities. The former AUD LIBOR, by contrast, relied on…
The document asks whether the sharp rise in long-term US Treasury yields during 1987 should be treated as a key cause of the stock market crash. It reports that the 30-year yield rose from 7.29% in January to 10.25% on October 19, a change of 296 basis…
The document discusses how to size the legs of a steepening yield-curve trade using Treasury futures. It clarifies that futures prices are market quotes; the practical sizing question is how many contracts to hold on each side. One common approach is DV01…