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 considers a payoff at a future date based on the positive difference between a strike and an average built from the compounded product of several forward rates. Under lognormal forward-rate dynamics, it changes to the payment-date forward…
This discussion recommends literature for readers with a mathematical background who want to study optimization in finance. The suggestions range from treatments of efficient frontier calculations and Markowitz portfolio construction to a technical book…
This explanation clarifies the role of conversion factors in bond futures and how they relate to the cheapest-to-deliver (CTD) bond. A conversion factor approximates the bond's price per unit of face value at a standardized 6% yield, using the bond's…
This example shows how to obtain correct accrued interest for a fixed-rate UK gilt in QuantLib when the settlement date falls within the ex-coupon period. The bond schedule, coupon, and day-count convention already produce the expected accrued interest on an…
The document asks whether the two legs of an interest rate swap can use different payment calendars. The answer says that swap legs may differ in payment frequency and day-count convention, and distinguishes payment calendars from floating-rate reset…
The document explains the distinction between single-factor and multifactor interest rate models. In a single-factor model, one source of randomness drives movements across the entire yield curve. A multifactor model allows several independent sources of…
The document considers whether to discount nominal cash flows using expected inflation or the nominal risk-free rate when inflation is higher. It argues for the nominal risk-free rate, using a one-year zero-coupon bond as a no-arbitrage example. Discounting…
The document compares two definitions of carry for zero-coupon bonds and asks why their calculated values differ. One expression uses the forward rate over a short interval relative to the current risk-free rate, with a discount scaling factor. The other…
The document discusses how to fill missing maturities in constant-maturity Treasury par-yield data before bootstrapping a zero-coupon curve. It describes the published CMT yields as par yields based on a cubic-spline model, where each quoted yield serves as…
The document explains a limitation in valuing a European option on a coupon-bearing bond as the sum of options on its individual cash flows. In a one-factor interest-rate model, the coupons and principal are driven by the same underlying factor and are…
The document asks whether data are available in aggregate on European banks’ use of credit risk approaches for regulatory capital. It describes the distinction between the Foundation and Advanced Internal Ratings-Based approaches, the additional role of…
The document considers how to price options when the underlying can fall below zero, a situation that conflicts with the standard lognormal price assumption in Black–Scholes–Merton. It presents two alternatives: the Bachelier model, which uses a normal price…
The document presents a lump-sum allocation problem: divide capital among segments with different deferral periods, interest rates, and payment durations so that each segment reaches the same ending value. The proposed method defines each segment's growth…
The document outlines a linear programming formulation for selecting securities to fund a known schedule of future payments at minimum initial cost. It recommends expressing required payments as a cumulative total through each month, then doing the same for…
The document asks why a GBP bond’s spread over gilts differs from the spread implied when converting its funding into USD through a cross-currency swap. It gives an example involving a seven-year bullet bond, a Bloomberg-derived USD equivalent, and the…
The document sets up a call option on a defaultable bond under a risk-neutral measure. Both the risk-free interest rate and the default hazard rate follow mean-reverting stochastic processes. The option payoff is conditional on the issuer surviving to the…
The document explains why the effective federal funds rate may dip at month-end as well as quarter-end. Its proposed mechanism is that foreign banks face balance-sheet reporting snapshots at month-end, while US banks use daily averages. Foreign banks may…
The document asks how banks calculate stressed Value at Risk for a credit bond portfolio, including whether a historical crisis period is applied to current positions and how old credit spread or rating moves affect the estimate. The answer describes one…
The document raises a fixed-income analysis question: how to estimate expected returns on local currency government bonds by separating carry from rolldown, then compare those returns with a risk-free rate and historical volatility to form an annualized…
The document asks whether a forward rate curve can be used to infer SABR parameters, with beta excluded, and then price derivatives. The accepted reply explains that the forward describes the underlying rate process, while SABR also models stochastic…
The document explains why a currency swap’s future payments are valued by discounting them at current market yields. Under annual compounding, a future cash flow is converted to present value by dividing by one plus the relevant yield raised to the time…
The document derives the interest-rate duration of a zero-coupon bond under continuous compounding. Its price at time t for maturity T is represented by discounting the single payment at rate r. Duration is defined as the negative derivative of price with…
The document examines whether a mortgage-backed securities book should include 30-year Treasuries in its curve hedges. The proposed setup bootstraps a yield curve, models prepayments and option-adjusted spread, and calculates key-rate DV01s before sizing…
The document presents a negative basis trade example that compares a bond’s Z-spread with the cost of repo funding and CDS protection. It gives a Z-spread of 100 basis points, a CDS spread of 40 basis points, and repo funding at 2%, described as Libor plus…