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 formulates an exchange-rate model in which the spot rate follows geometric Brownian motion and the domestic and foreign short rates each follow a Vasicek mean-reverting process. Under the domestic risk-neutral measure, the spot drift is the…
The question asks how to mark a total return swap on a single Treasury bond during its life, separating the bond performance leg, accrued coupon interest, and funding leg. It also asks whether the funding leg should use the full swap notional or the bond’s…
The discussion explains how a USD/JPY cross-currency basis swap’s par spread responds when the USD OIS curve moves. The result depends on which curves are held fixed and how the basis curve is treated. If USD OIS, USD and JPY projection curves, and the…
The document asks whether two bonds with the same maturity but different coupons should have matching option-adjusted spreads when their yields are calculated using the same Treasury zero-coupon curve. It highlights a potential mismatch between discounting…
The document checks the gross basis formula for a bond eligible for delivery into a futures contract. It defines gross basis as the bond’s clean price less the futures price multiplied by that bond’s conversion factor. It then asks whether this expression…
The document compares calibrating SABR models at quoted tenors and interpolating their parameters with using a stochastic volatility LIBOR Market Model. The proposed interpolation approach can produce smiles at intermediate maturities from sparse market…
The discussion considers how to adapt an equity Black–Scholes Monte Carlo framework, built around product definitions and simulation timelines, to price interest-rate swaptions. The suggested shortcut is to represent the underlying swap rate as a…
The document shows how to find the rate that discounts two future euro cash flows to a specified present value. Each cash flow is divided by one plus the annual rate raised to the number of years until payment, and the discounted amounts are added together.…
The response prices a coupon-bearing bond by discounting each scheduled coupon and the final face value with the discount factor for that payment date. It treats the stated annual coupon rate as split across two payments per year, and explains that a term…
The document presents a simplified Basel Pillar 2 granularity adjustment that adds a concentration-sensitive component to capital assessment. Its formula combines squared exposure shares with exposure-level terms involving default probability, loss given…
The document addresses whether negative zero rates obtained while bootstrapping a euro swap curve indicate a calculation error. Its response is that negative interest rates can be economically possible, so a negative zero rate alone does not prove the…
The document explains how a one-factor short-rate model can determine prices across many maturities even though it is named for the short rate. In a model such as Hull–White, discount bond prices at different maturities are functions of the modeled state…
The document gives a proof that a discount bond’s yield to maturity exceeds its current yield. It defines current yield as annual coupon divided by price, and frames yield as a function of the purchase price, coupon cashflow, and redemption amount. A bond…
The document explains a rough way to estimate the price of a high-yield CDX index from its coupon, spread, and duration. The example uses a five percent coupon, a spread near 300 basis points, and duration around four years; applying duration to the…
The document frames a multi-period funding problem: choose among borrowing sources to cover forecast cash shortfalls while minimizing interest expense. The example includes fixed-rate borrowing with a short maturity, a capped source available across a range…
The document considers how to approximate historical duration for bond futures when exchange records of past deliverable baskets are unavailable. The proposed initial proxy uses the on-the-run bond’s duration and conversion factor, but the response…
The document outlines how Eurodollar futures can inform the floating-rate projections used to value a plain vanilla interest rate swap. Futures-implied rates need a convexity adjustment before they are treated as forward rates, since futures and forward…
The document explains the link between the difference in futures and forward prices and the correlation between an underlying asset's price and interest rates. It asks whether negative rate correlation for stocks or bonds would make forwards more expensive…
A cash-settled swaption pays a function of the market swap rate, commonly the intrinsic value multiplied by a cash annuity. The annuity converts the rate payoff into a cash amount. Because the swap rate is observable, this convention can make the payoff…
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 considers how to estimate a bond yield at an intermediate maturity when two other bonds provide reference yields. For risky bullet bonds, its main recommendation is to separate the yield into a risk-free benchmark and a credit or liquidity…
The document outlines a basis-based method for adapting local-currency swap valuations to discounting on a USD OIS curve. It combines three market relationships: the local currency’s 3-month-versus-OIS basis, the local/USD cross-currency basis, and the USD…
The document explains why combining two managers’ returns using fixed allocation weights each quarter can produce a misleading annual result. That calculation assumes the portfolio is restored to its target equity and fixed-income weights after every period.…
The document outlines how to infer caplet implied volatilities from a sequence of cap prices and swap rates, as a step toward calibrating a Hull–White interest rate model for swaption pricing. It assumes caps are at the money and explains that the inputs…