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 question asks whether four quarterly LIBOR spot and forward rates can be derived from a one-year spot rate and a one-year-forward-one-year rate. The responses explain that a limited set of quoted maturities can support some equivalent rate calculations,…
The document examines an approximation used in deriving a convexity adjustment for a bond forward. It expands the bond price as a function of yield around today’s forward yield, then asks why the expected squared yield change can be approximated by the…
The document derives the no-arbitrage forward price for a coupon-bearing bond delivered at a future date. It starts from the condition that a newly entered forward has zero value, so the discounted expected delivery value minus the forward price must have…
The document addresses how to interpret the yield of a forward bond price when the available input is a zero curve quoted with continuous compounding. The example concerns a European put on a coupon bond and a relation that uses duration to translate forward…
The document explains why a claim paying an index value multiplied by one numéraire can have a different value when priced in units of another. It defines an adjusted initial index value as its expectation under the measure associated with the second…
The document explains how to hedge an interest rate swap portfolio using the risk buckets in a delta ladder. When each bucket records the market value change from a one basis point shift in a par instrument, the hedge should offset the portfolio’s DV01 in…
The answer explains how to bootstrap a forecasting curve separately from an overnight-indexed discount curve in QuantLib. In the example, an OIS curve is built first for discounting, while a LIBOR curve is bootstrapped for forecasting. Swap-rate helpers for…
This discussion identifies markets where Asian options may trade actively and where historical prices might be available. It points to options on federal funds futures: because the futures settle against the average effective federal funds rate over a…
The document explains how to retrieve the next cash flow date and amount from a plain vanilla interest rate swap in QuantLib’s Python interface. One approach subclasses the swap class, converts the fixed leg entries to coupons, and selects the first cash…
The discussion distinguishes a linearly interpolated swaption volatility cube from a cube generated using SABR. Linear interpolation of market quotes can describe a static set of Black-model volatilities across strikes and maturities. SABR instead models…
The discussion asks why some state-contingent prices in an example from Ross's Recovery Theorem exceed one. A response offers an intuition: a guaranteed payment in a particular future state can be highly valuable when that state involves catastrophe or when…
The document outlines a discounted cash flow approach for valuing a company’s equity from free cash flow to the firm. Its four-step process is to calculate the weighted average cost of capital, project next-period FCFF using a constant growth assumption,…
The document asks how to calculate a bond price at a future simulation time using forward rates produced by the HJM procedure described in Glasserman. It proposes discounting across the remaining grid intervals by summing the simulated forward rates for that…
The document discusses whether bond prices are set by supply and demand or calculated from interest rate curves. Its answers describe benchmark bonds as actively traded, with their prices reflecting market supply and demand. Other issues may be quoted…
The document explains how interest rate swaps (IRS) and overnight indexed swaps (OIS) differ in access and hedging use. Counterparty type does not by itself limit access to OIS: a corporate with an ISDA agreement to trade IRS with a bank can generally trade…
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…
The document concerns a pricing partial differential equation for a derivative whose underlying variable is an interest rate. Its general specification uses drift and volatility functions of time and the short rate, together with a market price of risk. The…
The document clarifies that reference rates used for swap floating legs and rates used to discount cash flows are distinct choices. It notes that EURIBOR remained in use, while EONIA was replaced by €STR, and that USD markets used both Federal Funds and SOFR…
An overnight index swap curve is a term structure built from market instruments referencing an overnight rate. The answer explains that curve construction uses instruments such as futures and swaps across maturities to infer discount factors and forward…
The document asks how to calculate interest on a loan, then presents the periodic payment formula for a fully amortizing loan. It derives the formula by tracking how the balance grows with interest and falls with each payment, and explains that the balance…
The document examines how to derive the differential of a time-dependent integral of a stochastic process, and asks about the correct integration variable in the expression. One response approximates the integral with sums over a partition, applies Itô's…
The document asks how the annuity should enter swaption risk calculations when a swaption price is expressed as the annuity multiplied by a Black-model price. It focuses on whether the annuity can be treated as fixed when calculating delta, and whether…
The document examines a Treasury bill bought in late 2019 and maturing in early 2020. It calculates the days to maturity and price using a 360-day discount convention, then finds that annualizing the bill’s return with 365 days does not match the quoted…
The document distinguishes tranche implied correlation from base correlation in collateralized debt obligation pricing. Implied correlation is the correlation input in a chosen copula model that reproduces the market price of one tranche. Depending on the…