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I've never seen Implied Repo defined like this but there's a way to check whether your reasoning is correct. The implied repo is called implied repo for a reason: take your favorite Repo pricer of choice, load the current CTD bond with delivery date equal to the future's expiration (e.g. first delivery date) and plug the IR rate as the repo cost. If the ...


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Act/Act for treasury note interest accruals


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I solved it for the case $\mu = r_1$, the solution in $\mathbb{C}^1$ takes the guessed form $$F(V) = \begin{cases} A_0 + A_1 V + A_2 V^{-x} \; \text{ if } \; V>k \\ B_0 + B_1 V + B_2 V^{-y} \; \text{ else } \end{cases}$$ where the constants can be found by plugging the guess into the ODE and the remaining ones by imposing boundary conditions and smooth ...


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In the US we can adjust coupons on treasury notes and bonds of similar maturities using strip prices (principal and interest). If we have, for example, a 2% 2/15/2030 note and a 1% 11/15/2029 note and principal strip prices for each we can take the note price and subtract the principal strip price, divide by the coupon, to get the price per 1% of coupon. We ...


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Just adding my two cents. Without taking the logarithm of the price, the Ito's Lemma should result in: $d p(t,T) = \left( \partial_t A(t,T) - \partial_t B(t,T) r + \frac{1}{2}\sigma^2B(t,T)^2 \right)p(t,T) dt - B(t,T) p(t,T) dr_t$ substituting now the partial derivatives and the differential $dr_t$, and simplifying the identical terms: $d p(t,T) = r_t p(t,T) ...


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It is in fact more common to fit this kind of model to coupon bonds. After all, the purpose of such curve fitting exercise is typically to obtain smoothed zero coupon curves (and by extension, smoothed par curves and forward curves). Recall that the zero coupon rates under the Svensson model can be calculated from $$ y(t) = \beta_0 + \beta_1 \frac{1 - \exp(-...


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Some financial terms to begin with: Dirty Price: It is equal to the sum of clean price and the accrued interest since last coupon payment. Say you hold a semi-annual bond (Purchased on 1st January and received a coupon on 1st July). Now if you price this bond on 1st September, then its price will also include the interest that has accrued since the last ...


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