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 describes a reported pattern of month-end declines in the Effective Federal Funds Rate and asks why it weakened from mid-2018 through mid-2021 before appearing again. It presents bank balance-sheet window dressing to improve reported liquidity…
The document asks how to interpret specialness in bond futures when holding a long-only cash bond portfolio. It contrasts a cash bond’s implied forward price, determined by its carry, with the futures-implied forward price. When the futures-implied carry is…
The document describes a market practice for estimating cross-currency basis between quoted maturity dates. Rather than interpolating the quoted basis or outright FX forwards directly, it presents a representation of the FX forward using spot, domestic and…
The document asks how to discount the legs of a fixed-to-fixed cross-currency swap when its collateral currency changes at a mandatory break date. Without a break, its proposed setup discounts euro cash flows using the euro collateral curve and uses a…
The document raises a practical fixed-income curve-construction problem: bootstrapping forward rates from on-the-run Treasury securities when their coupon dates do not align. It describes a proposed workflow that bootstraps forwards and then applies…
The document examines why the six-month point on a market-calibrated swap curve can differ from the published six-month LIBOR fixing. The explanation distinguishes the fixing from the market deposit rate used to calibrate the curve. A deposit instrument…
The document asks whether the Incremental Risk Charge (IRC), especially its treatment of default and rating migration, should be considered market risk or credit risk. It compares IRC with Credit Valuation Adjustment (CVA) and questions whether IRC is better…
The document distinguishes registered bond offerings from two exemptions from SEC registration. Registered bonds are registered with the SEC. Rule 144A allows issuers to sell unregistered bonds in the United States to qualified institutional buyers, entities…
The document describes applying principal component analysis to changes in the yield curve. The main purpose is to identify a small set of dominant movement patterns that can provide a concise language for describing curve risk. The patterns cited are…
The document explains why a short-rate model may be used to value bonds and swaps even when their cash flows have no embedded options. A correctly calibrated model must reproduce the present value obtained by discounting fixed cash flows against the spot…
The document explains how introducing stochastic interest rates changes the uniqueness of a Black–Scholes call price. The key issue is whether the interest rate risk can be traded and hedged. If no claims linked to the stochastic rate are available, the…
The discussion distinguishes daily rates for recently auctioned Treasury bills from constant-maturity rates. A bill labeled by its original term has less time remaining after issuance, so its quoted market rate reflects the security’s actual remaining…
A constant maturity swap rate is the par swap rate for a chosen tenor, observed on each reset date. A CMS leg therefore references a swap rate such as the ten-year rate even when payments reset more frequently. In a CMS swap, that rate may be exchanged for a…
The document disentangles the delta of a forward contract’s value from the sensitivity of a quoted forward or futures price. The value of an existing forward contract has spot delta of one when other inputs are held fixed. The forward delivery price, by…
The document examines negative carry claims for long positions in short-maturity Treasury note futures, including the two-year contract. It distinguishes cash bond carry from futures roll return: futures themselves do not have carry in the same sense as…
The document clarifies what is a martingale under a forward measure and whether clean or dirty bond prices qualify. A bond price alone is not generally a martingale under the T-forward measure; the relevant martingale is the asset price expressed relative to…
This note considers how to estimate value-at-risk for a stock-and-bond portfolio when one stock has only a short post-IPO return history. It raises two possible workarounds: bootstrap the stock's observed returns to create a longer series, or substitute…
The document explains the net basis in a Treasury cash bond and futures trade, addressing why it may be negative even though it is associated with delivery options. A negative reading does not by itself establish an arbitrage opportunity: funding constraints…
The document examines whether a forward-starting swap can be statically replicated using spot-starting zero-coupon swaps. The proposed hedge combines paying fixed on a one-year-forward, one-year swap, paying fixed on a spot-starting one-year zero-coupon…
The document explains why the ratio of two zero-coupon bond prices, with a common valuation horizon, is a martingale under the forward measure associated with one bond. It focuses on the conditional expectation and the correct use of Bayes’ rule when…
The document explores the coupon effect: for bonds with comparable duration and credit risk, coupon differences can affect yield comparisons, particularly when the yield curve slopes upward. It presents a piecewise linear relationship from a fixed-income…
The document asks whether USD LIBOR can serve as a spot rate for discounting and whether a rate for a 16-day interbank loan can be estimated from overnight and one-month LIBOR. The answer emphasizes that suitability for discounting depends on the cash flows…
The document examines how to price IBOR-linked caplets and floorlets when the underlying FRA uses different day-count conventions for its floating and fixed legs. The standard Black formula multiplies the option value by one accrual fraction, but real market…
The document considers calibrating an equity stochastic-volatility model alongside a stochastic short rate, with correlations among the driving processes. It explains that the stated combination may lack a tractable closed-form pricing formula, making direct…