Questions tagged [fixed-income]
Securities which obligate the borrower/issuer to make payments on a fixed schedule. Fixed income securities include sovereign, corporate and municipal bonds, corporate loans, and securitized lending (e.g., ABS). "Fixed" refers only to the schedule of obligatory payments, not the amount, and may include inflation linked bonds, variable-interest rate notes, and the like.
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difference of carry for zero coupon bonds in Pedersen and Ilmanen
I know that carry was discussed broadly on this forum but I can't get my head around the following difference.
If we talk about carry / rolldown I have trouble to see the connection / differences ...
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Predicting bond auction result. Should I train separate models for different maturity in face of Data deficiency?
Problem Statement
Trying to predict how bond auction result ( in terms of yield ) is different from its forecast (the when-issued yield ).
More info:http://www.mortgagenewsdaily.com/mortgage_rates/...
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6
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Callable bond price sensitivity to Hull-White volatility changes
I'm using classic Hull-White model for short term interest rate dynamic:
$$dr(t)=[\theta(t)-\alpha(t)r(t)]dt+\sigma(t)dW(t)$$
(Notation is quite intuitive, anyway I am using the same as Wikipedia ...
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How are quants able to verify whether their calculated prices are any good
This question is related to the discussion on Model Validation Criteria
However it appeard to be very high level to me and I would like to go more into detail.
Not working at a pricing desk the ...
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5
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What type of interpolation should be used in key rate perturbation models?
When perturbing a key rate in order to assess sensitivity of portfolio value, what sort of interpolation is standard? A book I am looking at says linear, but this seems pretty unrealistic to me--and ...
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What are the trade offs when choosing a long term bond future to trade?
It seems that when trading long term bonds *** and choosing between the two offerings on CME one is presented with a Scylla and Charybdis decision.
1. VOLATILITY CONSISTENCY: Ultra U.S. Treasury Bond ...
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RQuantLib: any difference between FixedRateBond() and FixedRateBondPriceByYield() with flat term structure?
Please, consider the following functions from RQuantLib package:
FixedRateBond()
...
- 2,086
3
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Popular treasury futures bond options volatility surface model/s
I am looking for volatility surface parametrisation model used for treasury futures bond options. I know that most popular for options on equities its SVI, on FX its Vanna-Volga, on rates its SABR. ...
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3
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Implied repo rate and slope of the yield curve
In page 34 of "Treasury Bond Basis" (Third Edition) by Burghardt et al, it says:
If the yield curve has a positive slope, carry for someone who is long bonds and short futures is positive. ...
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Book that considers stochastic interest rate models in discrete time?
Are there any books that covers interest rate swaps, futures, forwards etc. but have a discrete time model? I would like to go deeper into this without having to worry about the stochastic calculus.
...
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Libor transition to SOFR - swaps after 2021
Assuming that Libor will fully transition to SOFR by the end of 2021. How are swap rates after 2021 currently priced to reflect this? For example, if I am looking at 5 year US swap rate, doesn't this ...
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Estimating Market Price of Risk
I need help with estimating market price of risk. Assume money market account and two risky assets which exposed to same two sources of risks follow process:
$dM(t)=rM(t)dt$
$dS_1(t)=S_1(t)(\mu_1dt+\...
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3
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Using Python Quantlib's FittedBondDiscountCurve as Evaluator of Parametric Curve - Errors
I am using Quantlib's FittedBondDiscountCurve in Python 3.7 and setting MaxIterations to 0, and giving a guess_solution, which then turns the routine into an evaluator for the parametric form I choose,...
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3
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1
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impact of bond futures conversion factor on calendar spread trading
i have a quick question about conversion factor and his implication in calendar bonds roll trading.
I go short on a calendar roll (short front+long back) which has the same cheapest to deliver.
The ...
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3
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Bond spreads - SQASW
I posted this question in the finance/economics arm but someone suggested this would be a more relevant place.
I have attached a photo of a list of bond issuance's in Australia. Could someone please ...
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Fixed Income portfolio type
Could someone kindly point me toward a primer that would cover the various type of fixed income portfolio strategies under modern portfolio theory ?
In a nutshell, I would like to know what kind of ...
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How is the integral relationship between current yield curve and forward yield curve derived?
$$y(\tau) = \frac{1}{\tau} \int_{0}^{\tau} du \Big(f(u)\Big)$$
As far as I understand the forward rate is the future rate based on the expectation hypothesis. But it is unclear how many years into the ...
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Relative order of curve for coupons for Upward Sloping Yield
Why would the forward curve be above zero and coupon bond yield be at the bottom for a sloping up yield curve.
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Modified duration and convexity of a bond in R
A soft question:
Are there any existing packages in R that allows one to compute the modified duration and convexity of bonds in R? If there isn't, how can one go about doing so (with formulas) with ...
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Pricing Options on Fixed Income ETFs
The market for trading options on fixed income ETFs like HYG has become increasingly prominent in the past couple years, but I've been unable to find any discussion related to the pricing methodology ...
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Jamshidian's trick for Swaptions
Following Brigo$^1$ p.77, we can decompose the price of a swaption as a sum of Zero-Coupon bond options (Jamshidian's Trick).
To do so, the authors suggest to find $r^*$ the value of the spot rate at ...
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Correct form for State Space Equation for Kalman Filter for DNS
In this paper:
http://www.ssc.upenn.edu/~fdiebold/papers/paper55/DRAfinal.pdf
in eqns 3,5 the state eqn has the mean removed.
$(z_t-\mu)=A(z_{t-1}-\mu) + \epsilon_t$
$y_t=C z_t + \delta_t$
...
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Fed Funds Rate: longer maturities
FFR published by Fed Bank of NY is the average rate US banks charge each other for the overnight loans of their reserves required by the Fed regulations. Since Fed acts similar to a clearing house ...
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551
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Calculating Net Annualized Return on LendingClub historical data
I am interested in the formula LendingClub provides as their measure of "Net Annualized Return":
$\big(1 + \frac{\sum_{i=1}^N{((I_i + L_i - S_i - C_i + R_i) / P_i) P_i}}{\sum_{i=1}^N{P_i}}\big)^{12}-...
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3
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1
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Modified duration in multi-currency portfolio
I was thinking about how to figure aut duration for portfolio of bonds denominated in different currencies… I would like to compare sensitivity of portfolio to shift of yield with competitive ...
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3
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Pre- Versus post-2008 Crisis Rates Modeling
Modeling for interest rate derivatives (such as bermudan swaptions) is said to have undergone significant changes since the crisis. Prior to the crisis, counterparty default risk was often ignored, ...
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3
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Yield Curve Volatility
Let you have several issuers, and let each issuer have its yield curve built up with liquid plain vanilla fixed rate bonds.
Each yield curve has its slope and its curvature, and they obviously change ...
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3
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Carry and Pull to Par of a bond
I am of the understanding the true carry of a bond is yield - repo rate. And not simply coupon + repo cost because this doesn’t ...
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Accrued interest on RFR Floating Rate Note
On fixed rate bonds and IBOR based floating rate notes the next cashflow is known definitively in advance, therefore the accrued interest for a given settlement date is a trivial calculation typically ...
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Mispricing models for non-equity asset classes
Despite risk-factor models like Fama/French
(1993) or q-theory based models like Hou et al. (2015), others have proposed factor-models to capture mispricing in equities, e.g. Stambaugh/Yuan (2017) and ...
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Tax obligation in collaterised loan
Typically physical assets e.g. gold are held as collateral for corporate loan. In case of default, the holder of the corporate loan (i.e. bank) can liquidate the collateral asset held to recover the ...
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Munk (2011) exercise 3.6
I'm trying to solve the exercise in Munk (2011). The exercise reads:
"Find the dynamics of the process: $\xi^{\lambda}_{t} = \exp\left\{-\int^{t}_{0} \lambda_{s} dz_{s} - \frac{1}{2}\int^{t}_{0} \...
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The price of liquidity
We are currently in the US Treasury roll period when investors are rolling from the previously issued notes and bonds into the currently issued notes and bonds, aka "Rolling from Off-The-Runs to ...
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Do you roll back the maturities and schedules when backtesting VaR for portfolios of bonds, options or future contracts?
I want to backtest VaR models which are applied to portfolios of products which have maturities (options and futures) and even schedules (bonds). I have a question which never came up when backtesting ...
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Back testing fixed income for bond portfolio management
When doing back test trying to replicate a paper, how do you handle bonds that are maturing in an index?
Say I was trying to create a strategy, how do I account for bonds that mature in terms of ...
2
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118
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Holding cost of risky sovereign debt in Europe
I am trying to better understand the sovereign bond market in the eurozone. In particular is it costlier for some institutions to hold periphery country bonds that contain more credit risk than say ...
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2
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73
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Swap spreads behaviour before Treasury auctions
Not really a quant question but why would someone buy us swap spreads before a US treasury auction. I get the idea of bidding for the bonds and then using the swap leg to asw the bond but whats the ...
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What explains bond “convenience yields”?
Bond convenience yield refers to nonpecuniary benefits of holding bonds, that is, some benefit other than direct cash flows. Recently there has been much empirical academic research on such yields.
...
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Pricing kernel representation
I am reading this paper https://mpra.ub.uni-muenchen.de/4969/1/MPRA_paper_4969.pdf pp.6-7 on discrete-time bond pricing. The model adopted is a a common affine model,
the short rate follows
\begin{...
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What are some advanced methods for bond risk transformations?
Consider a portfolio of bonds within a given yield curve (e.g. Gilt curve), consisting of positions in every bond in the curve. I'm looking for ways to transform the risk of the portfolio into ...
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Simulating a square root process with jumps for mortgage defaults
I am trying to simulate the paydown of a large pool of mortgage loans. For each monthly period, I am reducing principal by the scheduled principal payment (approximated by the WAC of the underlying ...
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2
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How to optimise Fixed Income portfolio (Yieldbook) based on YTM, duration, rating and exchange rate
I have a fixed income portfolio built up in the Yieldbook and BBG Port.
However due to some bad performance of my portfolio compared to the benchmark I would like to build up an optimisation which ...
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Fed repo operations - Balance sheet constraints
There's been a lot of discussions regarding end-of-year balance sheet constraints as dealers wind down their repo activity. However, the Fed is engaged in open market repo operations in overnight and ...
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To price Municipal Bonds and risks I want to know the percent of unfunded pension liabilities ($3.8T) to total state and local gov liabilities
Unfunded pension liabilities keep growing and this seems alarming to both pension holders but also Municipal Bond holders.
I would like to know how large this problem is to better price Munis and ...
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Pricing bond backed by collateral
I'm new to quantitative finance, and trying to derive an interest rate for a collateralized bond.
Imagine there are two parties, Alice and Bob. Alice wants to lend $X$ units of an asset to Bob. The ...
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Yield Curve Trading Strategy Explaining Books
Recently I really enjoyed being here while getting great recommendations. Would like to thank you all.
Could you please recommend some books/papers on trading strategies, lets say yield curve ...
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Strategy in steepening curve environment, stable spreads - HotS interview problem
The following problem was found in "Heard on the Street":
You construct a yield curve for (coupon-bearing) treasuries. A
particular five-year corporate zero-coupon bond has a default risk
...
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Importing a zero coupon curve to RQuantLib
I am trying to use a zero coupon curve constructed elsewhere to price treasury bonds in RQuantLib.
The issue is that DiscountCurve does not take zero coupon yields as inputs, but rather swap rates. I ...
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How should I interpret a forward rate?
Let $L(t, S, T)$ denote the forward rate from time S to T observed at time t, assuming t < S < T.
A lot of modelling work is centered around this rate, but how is this rate useful? How are we ...
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