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From the US Treasury FAQ: "CMT rates are read from fixed, constant maturity points on the curve and may not match the exact yield on any one specific security ... For example, the 20-year daily yield curve rate (i.e., the 20-year CMT) represents the yield for a new theoretical 20-year bond as of that date." Due to aging of the 10 year and 20 year ...


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I’m going to go on a limb and suggest that it was Stigum’s Money Market back in the late 70’s that formalised many of these conventions. This was the major reference at the time the bond and money markets exploded in size and volume. Along with academic / practitioner stalwarts like Frank Fabozzi, these conventions just became entrenched (and also why there ...


2

Risk-free assets refer to assets with a definite rate of return and no risk of default.   From the perspective of mathematical statistics, risk-free assets refer to assets with zero variance or standard deviation of investment returns. Of course, the covariance and correlation coefficient between the rate of return of risk-free assets and the rate of return ...


1

The kinds of corporate actions that would affect equities in the index context are splits, reverese splits, stock dividends, etc. E.g., you start out with 1 share, and the next day you have 2 shares worth half the old price, but the same net claim on the corporation. But these corporate actions don't affect bonds. You have an obligation promising to repay ...


1

how does one actually go about hedging? Your OAS model determines your hedging instruments, hedge ratios, and hedging (model) risk. If your OAS model calibrates to the LIBOR swap curve and swaption vols (which is common), then you can generate hedge ratios by computing key rate durations of the underlying swap and swaption instruments. For example: Hedging ...


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"Essentially a positive OAS implies that once hedged against the forward LIBOR rates, a security will have positive returns": I don't believe this statement is correct. Essentially, the OAS is a statement about expected excess returns (after hedging out duration and volatility risk as described in the comments above) and says little to nothing ...


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