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 discussion compares two ways to describe the one-day profit and loss of a payer in a short-dated zero-coupon interest rate swap. One interpretation defines carry as the predictable accrual component and roll-down as the value change from the curve’s…
The document explains why a two-year government bond future cannot be priced reliably by chaining deposit futures to estimate a matching interest rate. A deposit curve can be built from deposit rates and used to discount the bond’s cash flows, but deposit…
The document addresses a question about applying the Nelson–Siegel–Svensson model to bond cash flows. The questioner is unsure whether bonds with different cash-flow dates require a shared discount vector sized to the longest bond, so that a cash-flow matrix…
An overnight index swap (OIS) exchanges a fixed rate for a floating overnight rate, and its quoted fixed rate is the level that makes the swap fair. There is no single universal OIS rate: the index depends on the currency and market, with examples including…
The question concerns whether a transition matrix estimated from a sample of bond rating histories is consistent with a published agency matrix. The response points readers to research on statistical comparison of rating transition matrices, including work…
The document compares physical settlement, auction-based cash settlement, and fixed-recovery cash settlement for credit default swaps. Under physical settlement, the protection buyer delivers an eligible debt obligation and receives its face amount. Auction…
The document addresses whether interest-rate predictors must be transformed to normal distributions before they can be used in an ordinary least squares regression. Its central point is that normality of the explanatory variables is not an OLS requirement.…
The document considers a bond whose coupon is determined randomly on the payment date and asks whether its value can be found by averaging the prices of bonds with fixed coupons under real-world probabilities. The central pricing distinction is whether the…
The document explains how to compare a quoted currency forward rate with a no-arbitrage rate derived from borrowing and lending rates. When the quoted rate differs, the arbitrageur buys the currency through the cheaper route and sells it through the more…
The document investigates why a QuantLib fixed-rate bond gives coupon amounts that differ slightly from the stated rate when configured with ACT/ACT, while a 30/360 Bond Basis setting produces the expected coupon amounts but a different accrued-interest…
The document addresses how to obtain an initial short-maturity zero-curve point from a tradable overnight index swap quote. Its answer focuses on day-count conventions: quoted OIS par rates may use an ACT/360 basis, while the zero rates delivered to users…
The document explains why credit default swap index contracts can use standardized fixed coupons even when the market spread differs from that coupon. Its central point is that the difference between the contractual coupon and the market spread is settled…
The document defines longevity risk from two related perspectives. For an individual, it is the possibility of living longer than their retirement savings can support. For a pension plan or other institution promising lifelong income, it is the financial…
This explanation shows how FX forwards and cross-currency swaps determine discount factors for cash flows collateralized in a currency different from the payment currency. It first identifies local-currency discount curves from interbank instruments, then…
This discussion concerns calibrating the default probability input to a collateralized debt obligation model using a one-factor Gaussian copula and the large homogeneous portfolio approximation. In that setup, expected tranche loss depends on the reference…
The document corrects a textbook description that presents a Eurodollar futures contract as a commitment to deliver a one-million-dollar, three-month time deposit. The answer explains that the CME contract was cash settled rather than physically delivered.…
The document shows how to value an annuity using the cash flows of a fixed-rate bond in QuantLib. The method starts with a bond built from a payment schedule and a discounting engine tied to a spot yield curve. To represent an annuity with no principal…
The document explains how marginal, cumulative, and conditional probabilities of default relate when estimating expected credit loss (ECL). It illustrates how repeated annual default risk can be converted into marginal probabilities and summed into…
The document considers whether a bond index can stand in for the risk-free rate in the Capital Asset Pricing Model. One response argues that broad bond indexes can contain government, municipal, corporate, high-yield, mortgage-backed, and loan exposures, so…
The document explains how put-call parity for year-on-year inflation caps and floors can be used to infer the market rate of the underlying inflation swap. In present-value terms, the cap value minus the floor value equals the value of a swap that pays fixed…
The discussion explains carry and roll-down using an interest rate swap whose curve slopes upward. Carry comes from the already fixed floating coupon relative to the swap’s fixed rate; roll-down comes from repricing the remaining cash flows as the swap…
The note decomposes the risk of a USD-denominated Mexican corporate bond into USD interest-rate exposure, the spread of USD-denominated Mexican sovereign debt over the USD risk-free curve, and the issuer’s additional idiosyncratic spread. It suggests hedging…
The note distinguishes the credit exposure of an interest rate swap from the reason overnight rates are used for discounting. Its answer says that swaps referencing LIBOR or another floating rate generally have little counterparty risk when they are subject…
The document outlines how to build a curve from an index instrument and a sequence of forward rate agreement quotes, including overlapping FRAs. It frames the task as choosing curve parameters, interpolation, and discount factor node dates so the setup can…