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 asks which convention Excel uses for YEARFRAC with the ACT/ACT basis. It argues that Excel’s behavior does not match ACT/ACT ISDA or ACT/ACT AFB, and suggests it may be a Microsoft-specific implementation. The response questions whether Excel’s…
The document derives the price process of a zero-coupon discount bond from a stochastic process for its continuously compounded yield to maturity. It represents the bond price as the exponential of negative yield times remaining maturity, then applies Itô’s…
The document considers which Treasury rate to use as the risk-free proxy when calculating quarterly excess returns for an asset typically held over a longer horizon. It contrasts using a maturity aligned with the asset’s holding period against the commonly…
The document explains two ways to estimate interest rate swap PV01 and infer a notional from a target risk amount. For an exact sensitivity, it recommends pricing with unbumped market data, bumping the market curve, repricing, and measuring the change. When…
The document describes how a cross-currency swap can be used to estimate an FX forward rate and express it as forward points relative to spot. One approach first converts the floating currency leg to a fixed rate using the corresponding single-currency swap…
The document compares logistic regression with Poisson-based generalized linear models for retail credit default probability. It favors logistic regression as the more common choice for this purpose because default is a categorical outcome, while Poisson…
The document explains how to select an interest rate when converting future cash flows into present values for U.S. securities. Its main guidance is to match each payment date with the corresponding zero-coupon rate from a yield curve, rather than applying…
The document asks how to follow a step in Piterbarg’s treatment of collateral agreements and derivatives pricing. The sticking point is a change in discount factor between two equations, and the questioner suspects integration by parts and notes that the…
The document considers how a payment delay affects discount-factor bootstrapping for SOFR swaps. It distinguishes the accrual period, which determines the interest amount, from the later cash-flow payment date. The answer argues that the payment lag’s…
The document explains how to calculate the distribution of active return when a security is compared with a benchmark that has a fixed return and no volatility. It expresses each investment’s value after a year as a random variable, then subtracts the…
The document discusses how to allocate assets for an institutional portfolio whose purpose is to meet pension liabilities. It distinguishes liability-driven investing from benchmark-driven investing and recommends first establishing the client’s objectives,…
The discussion explains a discrepancy between a yield to maturity calculated with Excel’s RATE function and one found using a spreadsheet goal-seek method. The proposed explanation is that the two outputs use different compounding conventions: the…
The discussion considers how to account for convexity when bootstrapping a SOFR curve with futures and swaps. It distinguishes the task of calibrating to American options on SOFR futures from estimating futures convexity, and outlines approaches proposed by…
The document explains why pricing a portfolio of swaptions by simulating several forward rates independently can be inconsistent. In the example, a swap rate depends on multiple forward rates, while under the relevant forward measure only one rate can retain…
The document asks how to calculate a year fraction between dates spanning many years under Act/365. The answer says to count the actual calendar days between the dates and divide that full count by 365 for the fixed convention. This differs from counting…
The document discusses how a sell-side desk may hedge interest rate caps and floors without managing every caplet as a separate position. Its central practical point is that trades with similar risk are combined in a portfolio book, and the desk hedges the…
The document solves a coupled continuous-time model in which asset B grows at rate σ and contributes income σB to asset D, while D also grows at its own rate μ. The solution uses an integrating factor: multiply D by e^(−μt), integrate the resulting…
The document explains how forward premium enters currency option pricing and clarifies the role of overnight indexed swaps. In the Garman–Kohlhagen formulation, the domestic-minus-foreign interest rate differential determines the forward exchange rate…
The document poses a fixed-income valuation question involving two zero-coupon bonds with different maturities and the forward rate between them. It assumes that this forward rate is lognormally distributed under the measure associated with the…
The document asks how to characterize changes in an interest rate swaption surface beyond taking the average of cell-by-cell differences between two days. It gives an example of subtracting surface values across dates and averaging the resulting shifts,…
The document introduces the frozen-drift approximation in the LIBOR Market Model (also called the LIBOR Forward Model). Freezing drift can make calculations more efficient and treats swap rates as approximately lognormal, but it may distort the terminal…
The document investigates a mismatch between a discount factor calculated from a quoted zero rate and a displayed Bloomberg value. It compares two compounding conventions: periodic compounding and simple interest. Neither reproduces the displayed factor when…
The document answers whether the modified duration of an overnight index swap is zero or nearly zero. It explains that an OIS has a floating leg and a fixed leg, so the duration of the whole swap cannot be inferred from the behavior of the overnight floating…
The document develops a statistical way to relate an individual market maker’s quoted spread to the best executable bid–ask spread observed across multiple makers. It assumes each maker uses the same unknown spread and that uncertainty in each maker’s…