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 presents an identity for forward rates at a given observation time: a forward rate spanning multiple periods is stated to equal the average of the sequence of one-period forward rates over the same horizon. It frames the identity as a…
The document distinguishes estimating Vasicek model parameters from historical short-rate observations from estimating the market price of risk. Maximum likelihood estimation on historical data may estimate real-world parameters such as the long-run mean,…
The discussion considers how to calculate lagged correlations when an interest-rate series has blank dates. One suggestion is to interpolate missing observations because rates often change gradually, while marking the estimated values and repeating the…
The document considers hedging a USD corporate bond into GBP using either rolling three-month FX forwards or a cross-currency swap, with rates risk hedged separately through interest rate swaps. It asks how to compare the approaches’ costs as an effect on…
The document asks what defines a package trade in rates markets, whether a package must be DV01-neutral, why hedge funds request one, and why it may be hard to price. Its example is a set of instruments traded together to target exposure around a particular…
The document considers how to infer the volatility implied by a convertible note’s issue price when the instrument includes early conversion, issuer redemption, and capped calls. A simple decomposition into bond value and option value may be inadequate once…
The document frames a dimensionality-reduction problem for an interest-rate par risk strip with many buckets. It seeks a smaller set of representative risk buckets and an aggregation function that best preserve the original strip’s delta P&L. Principal…
The note examines why a Treasury futures position sized to match a swap’s DV01 can imply a different principal exposure from a cash bond hedge. It calculates futures DV01 by dividing the cheapest-to-deliver bond’s DV01 by the conversion factor, then uses…
The document investigates why a year-on-year inflation swap rate may need a convexity adjustment when inferred from zero-coupon inflation swap rates. It starts with an example using a current index level and market rates at two maturities, then calculates…
The document explains why changing short-rate volatility can affect an interest rate swap’s value in the Ho–Lee model, despite the intuition that swap pricing depends on current zero-coupon bond prices. It presents the short rate as a drift term plus a…
The document explains how the ISDA CDS calculator handles a contract that was originally traded in the past but is now being valued with less time to maturity. The calculator is a pricing model, not a historical or current spread database, so the user must…
The document asks whether interest rates in binomial and continuous-time pricing models can be stochastic while still allowing a change to a risk-neutral measure. Its two-period example treats the rate as an additional random outcome that is not determined…
This QuantLib discussion investigates why a newly constructed Treasury bond does not return exactly par when priced at a coupon date using a flat yield. The example is a long-dated, semiannual fixed-rate bond with a 2% coupon and a 1% annual yield. The…
The document describes how agency mortgage-backed securities (MBS) TBA trading relates to the allocation of specific pools before settlement. Pools for a TBA trade are identified by the 48-hour day, set two business days before the settlement date. TBA…
The document explains how principal component analysis (PCA) is used to describe changes in yields across maturities. PCA finds eigenvectors of the covariance matrix of yield changes, ordered by their eigenvalues, which measure the variance captured by each…
The document examines why lower yields on Hong Kong dollar government bonds than on US dollar bonds do not necessarily create a risk-free arbitrage, even though the currencies are pegged. The responses identify possible loss of the peg, restrictions on…
The document addresses where to find historical trading-volume statistics for fixed-income markets, including corporate bonds by rating, Treasuries, mortgage-backed securities, and asset-backed securities. The question seeks data reaching back before the…
The note explains how the transition from LIBOR to SOFR affects the optionlets included in a standard one-year USD interest-rate cap. In the LIBOR convention described, the first rate fixing is already known at the start date, so the cap begins with the…
The document describes why valuation of the foreign leg of a mark-to-market cross-currency swap can require a convexity adjustment. It writes the foreign-leg cash flows and explains that the relevant expectation is taken under the domestic measure, while the…
The document asks whether a multi-year observed loan default probability can be converted into an annual rate by assuming a constant annual default probability. The accepted explanation models a portfolio in which each year’s defaults are drawn from the…
The document explains how to calculate periodic cash flows and present values for a USD cross-currency basis swap involving three-month and twelve-month LIBOR legs. For each period, it multiplies notional by the accrual fraction and the applicable LIBOR…
The document proposes valuing the principal floor embedded in an inflation-linked bond by treating the consumer price index as an underlying asset and the floor as a put option. When traded inflation floor instruments are unavailable, it suggests estimating…
The document addresses the relationship between present and future values for ordinary annuities and annuities due. It corrects the premise that the two annuity-due formulas require unrelated adjustments: once the present value is known, its future value is…
The document presents a bond valuation question: how to discount a schedule of coupon and principal payments using quoted spot rates, while also applying a credit spread. The author compares a spreadsheet calculation with a valuation engine and asks whether…