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.
610 documents
The document considers how to hedge two opposite currency flows occurring on different future dates. Hedging each flow with a separate forward can secure both exchange rates, but leaves the hedger paying for two contracts. Waiting until the first flow occurs…
The discussion explains how to value a five-year arrangement in which an investor pays par, receives LIBOR plus a spread annually, and gets principal back at maturity. It treats the cash flows as a floating-rate note (FRN): a LIBOR-only FRN valued at par…
The discussion separates a forward price from a forecast of the asset’s future spot price. A forward contract sets a price today for an exchange at a later date; financing costs and the value of holding or using the asset can make that price differ from an…
The document asks about emerging-market currency bonds priced using cross-currency swap rates and about the participants and drivers of fixed-local-currency versus floating-dollar swaps. The response describes these swaps as longer-dated expressions of…
This answer outlines two broad influences on exchange rates: current account balances and differences in interest rates and inflation. A current account deficit can imply structural currency supply and depreciation pressure, while a surplus can imply…
The discussion addresses how to interpret a quoted spread on the shorter leg of a tenor basis swap when that leg’s rate accrues over shorter periods but pays on the longer leg’s schedule. It explains that the term sheet or governing market documentation…
The discussion explains why a known cash dividend can appear to be carried at the net cost-of-carry rate in a discrete-dividend forward formula, even though the dividend itself is reinvested in a cash account at the risk-free rate. A hedge-based derivation…
The document addresses an apparent carry mismatch between a bond futures price observed on its last trading day and the cheapest-to-deliver bond’s forward price at the last delivery date. It asks whether the bond forward should instead be valued to the…
The document examines the convention of estimating fixed-income roll-down by moving a bond along today’s spot yield curve. It contrasts that practice with using a forward curve, which might seem more suitable as a predictor of yields at the investment…
The document explains how to adapt a collateralized forward-pricing relationship for an inflation-linked bond with a coupon paid before forward settlement. The nominal bond proceeds method is adjusted by applying an index ratio to the spot value, interim…
The document explains why bond-market discussions use more than one definition of carry. A short-horizon return approximation separates coupon income, pull to par, and the price effect of a yield change. In financed-position analysis, carry is also quoted as…
The note examines whether bond carry should include an expected loss for default, often expressed using default probability and loss given default. The answer explains that a performing bond’s market price already reflects market views about rates, default…
The discussion compares two ways to describe the one-day profit and loss of a payer in a short-dated zero-coupon interest rate swap. One interpretation defines carry as the predictable accrual component and roll-down as the value change from the curve’s…
The document distinguishes the market price of a currency forward from the cost of hedging measured relative to spot. Covered interest rate parity links the two: under parity, the forward-to-spot ratio equals the ratio of the two currencies’ gross interest…
The discussion explains carry and roll-down using an interest rate swap whose curve slopes upward. Carry comes from the already fixed floating coupon relative to the swap’s fixed rate; roll-down comes from repricing the remaining cash flows as the swap…
The document addresses a practical interest rate swap carry calculation and clarifies the role of a six-month discount factor. It describes calculating upfront carry as the difference between the five-year swap rate and six-month Euribor, multiplied by the…
The document explains why a currency hedge can have an apparent annual cost even when a forward contract produces no profit or loss if the exchange rate at maturity matches the agreed forward rate. The key point is that the forward rate already reflects the…
The document examines whether a market maker should reverse the usual cost-of-carry formula when quoting a bid for a forward. It develops the standard no-arbitrage relationship by considering a short forward position hedged with a purchase of the underlying,…
The exercise describes a proposed trade using interest rate swaps, short selling a coupon bond, and rolling deposit funding. It bootstraps discount factors from swap rates, then compares the bond’s discounted cash flows with swap-related receipts to claim a…
The document considers how to value legacy USD LIBOR swaps that fall back to compounded-in-arrears SOFR plus a fixed spread. It distinguishes these fallback cash flows from standard SOFR swaps, whose floating legs compound daily published SOFR. It explains…
The document clarifies that a forward premium is not an option premium paid for a right to exercise. It describes the annualized forward premium as the continuously compounded rate implied by the ratio of the forward price to the current spot price over the…
The document explains how a currency investor can receive the higher interest rate associated with a foreign currency. After exchanging domestic funds for foreign currency, an investor may hold the balance in a local bank account that pays interest, subject…
The document derives the foreign-exchange forward pricing relationship using the cost-of-carry framework. It treats the domestic interest rate as the opportunity cost of holding the currency and the foreign interest rate as the benefit earned by investing in…
The document asks whether a premium bond necessarily has negative roll-down return, as several cited explanations claim. It distinguishes that claim from pull-to-par: on an upward-sloping yield curve, a bond that ages into a lower-yield maturity point may…