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 addresses how to compute the second derivative of the logarithm of market discount factors in the Ho–Lee interest-rate model’s calibration function. Since observed discount factors are discrete values rather than a continuous formula, the…
The document distinguishes realized profit on a consumer loan from the estimate made when the loan is issued. After repayment, the bank can compare the loan’s return with its cost of capital over the loan period. Before the outcome is known, the…
The document frames a hedging comparison for an American issuer with Canadian-dollar bonds and an existing USD/CAD fixed-for-floating swap. The issuer wants to hedge the swap’s floating FX leg, choosing between an FX basis swap and a series of three-month FX…
The answer distinguishes a bond’s quoted clean price from the dirty price paid in a secondary-market transaction. The clean quote excludes accrued interest; the dirty proceeds include accrued interest through settlement and may also reflect adjustments for…
The document considers how to express floating-rate bond sensitivities, including BR01, when discounting and coupon curves are built from different instruments. It proposes representing the input sensitivities as a vector and mapping them into a chosen risk…
The document considers how to represent a reported correlation between interest rates and S&P returns. It notes that geometric Brownian motion is often used for equities, while interest rate models commonly need to keep rates positive and capture mean…
The document explains cheapest collateral in a collateral optimization setting where a party can choose which asset to post. For securities, one view is that the economically cheapest asset is the one with the highest repo funding rate: delivering it avoids…
The document outlines a simulation-based approach to counterparty and own-credit valuation adjustments for an inflation-linked swap. It proposes dividing the valuation horizon into intervals, generating future CPI paths calibrated to a forecast and…
The document explains how to estimate the compounded floating payment on an EONIA swap. The realized rate compounds daily fixings over the accrual period, with the day count for each fixing reflecting how long it applies. Before those fixings are known, the…
The document asks how to obtain LIBOR rates whose reset or maturity dates fall between the model’s predefined dates. It presents two approaches: use an arbitrage-free interpolation scheme designed for the displaced-diffusion LIBOR Market Model, or bootstrap…
The document describes how to mark an existing vanilla swap to market after time has passed while preserving its original cash-flow dates and maturity. Rather than rebuilding the swap with shifted schedules, the approach is to retain the swap object, advance…
The document considers whether a point-in-time probability-of-default model can include macroeconomic variables whose effects arrive more than a year later. Its example models next quarter’s default rate using the current default rate and a lagged change in…
This explanation frames interest rate parity as a covered arbitrage linking spot FX, borrowing and lending in two currencies, and a forward FX trade. The parity relationship requires rates that match the financing costs of the arbitrage. Historically,…
The document explains who can sell credit default swap protection on debt. Its central distinction is that CDS protection references debt securities, rather than an issuer’s general assets. A company cannot sell protection on its own debt, but it may sell…
The document discusses validating a user-built Libor Market Model implementation when calibration to market volatility inputs does not reproduce cap prices. It recommends separating implementation errors from market-data or calibration problems by first…
The document explains why a live interest rate swap valuation can request historical index fixings on dates that differ from the schedule dates shown in QuantLibXL. The schedule dates correspond to coupon value dates, while the floating coupon needs the…
The document derives the instantaneous forward rate from the continuously compounded zero-coupon spot yield curve. It equates a bond’s price expressed using its maturity-specific spot rate with the same price expressed as the accumulation of forward rates…
The document distinguishes DV01, the dollar change in a bond's value for a unit change in yield, from interest-rate DV01, the dollar value change associated with a one-basis-point parallel upward shift in interest rates. The questioner suggests the…
The document examines whether to price a call option on a mutual fund using a risk-neutral return assumption or an estimated real-world return. It notes that historical volatility may be used when implied volatility is unavailable, but expected return…
The discussion considers how to represent a cross-currency swap whose notional changes halfway through an accrual period. One response argues that a single coupon period is normally defined using one notional, making an intra-period change ambiguous unless…
The discussion considers how to select liquid, low-cost ETFs spanning broad asset classes and regions for testing a portfolio selection algorithm. It emphasizes choosing funds that closely track indexes with long histories, so older index data can extend a…
The document describes a QuantLib-Python construction error caused by passing simple cash flows to a Bond constructor that expects a leg of coupons. The proposed correction is to represent scheduled interest payments as fixed-rate coupons, with payment…
The document clarifies how market implied volatility surfaces for caps and European swaptions relate to pricing more complex interest rate derivatives. A quoted surface represents vanilla option prices under a chosen convention or simple model, such as…
The document explains why the relationship between equity prices and interest rates changes with the economic backdrop. It contrasts the familiar channel in which higher borrowing costs weigh on firms with conditions where stronger growth lifts earnings…