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1 vote

Compare Spread On A Fixed Bond Vs A Loan/FRN?

No. You can hedge the interest rate risk of a fixed-coupon instrument at immaterial cost. Don't discount a fixed-coupon instrument more than a floater because of the presense of additional interest ...
Dimitri Vulis's user avatar
5 votes

US swap spreads

The basic point you are making is correct. The main reason why swap spreads are negative is the large amount of Treasury issuance versus the limited capacity to own them. The scarcity of bank balance ...
dm63's user avatar
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0 votes

mathematical proof of the hedge ratio formula for bond futures

Well you need to account for carry too which is easy Very simply.. Bond future price ~ ctd bond forward / cf This implied dv01 of the bond fut ~ dv01 of ctd forward/cf Obviously I'm missing the value ...
user68819's user avatar
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1 vote

Any other ways to hedge a bond portfolio against interest rate risk?

If you are long a bond and want to hedge it: Sell the same bond. Sell another bond. Sell a bond future. Pay a swap. Buy a payer swaption. Those are some basic methods. Ofcourse there are many ...
user68819's user avatar
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0 votes

Difference in interpretation between credit ratings from different agencies

As pointed out in the anwser already posted, If you have the data you can test whether default rates are relatively similar over time, from lectures I remember that the criteria for credit rating ...
Julien Maas's user avatar
0 votes

Difference in interpretation between credit ratings from different agencies

From my past experience in credit risk, each credit rating is usually tagged to a PD range forecasted by the PD model itself. For example, AAA in S&P is tagged to 0% to 0.01% PD over the next year....
Kai's user avatar
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2 votes
Accepted

Floor vs Receiver Swaption with Equal Strike

This is a classic question and has been asked/well-addressed several times in this forum in prior answers. Suffice it to say, a $K$-strike receiver swaption $\leq$ a $K$-strike floor and this ...
user35980's user avatar
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1 vote

Senior Preferred vs Senior Unsecured Bonds

I am not a lawyer... The EU amended Bank Recovery and Resolution Directive (BRRD). Accordingly, Germany amended Section 46f of the German Banking Law effective July 21, 2018 to implement this. Only ...
Dimitri Vulis's user avatar
0 votes

Floor vs Receiver Swaption with Equal Strike

For single curve pricing (same funding/discounting and forward curve), with index $L(T_{i-1},T_i)$ and its $T_i$-forward expectation $F(T_m,T_{i-1},T_i)$ (forward rate of the index as of $T_m$), we do ...
ir7's user avatar
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2 votes

Floor vs Receiver Swaption with Equal Strike

I'd say the floor should definitely always be worth more than the swaption. The vol on the swaption is an average of the expected vol of forwards (averaged to some extent). Intuitively it makes sense ...
user68819's user avatar
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1 vote

Market Makers how can they sell an asset they don't have

Too long for a comment, just adding a little historical color to the other good answers. After the 2007-2008 Global Financial Crisis), many U.S. market makers became subjected to the "Volcker ...
Dimitri Vulis's user avatar
3 votes

Market Makers how can they sell an asset they don't have

Most market makers keep some inventory. Just like a supermarket has a stock of food ready to sell. I don't think you can call yourself a market maker and have zero inventory at all times. But it may ...
nbbo2's user avatar
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1 vote

Market Makers how can they sell an asset they don't have

Securities borrowing and lending via the repo market. If the bank doesn't own the bond, it can borrow the bond post sale and deliver it in a certain time frame to the buyer at the agreed price. ...
user68819's user avatar
  • 361
2 votes

Ten Year Note Futures Implied Repo Rate calculation from CME Understanding Treasury Futures Document

I get the same as @oronimbus using my own pricing library github.com/attack68/rateslib, for those without BBG (and BBG formulae are not transparent) ...
Attack68's user avatar
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2 votes

What is "position" when referring to the holders of a bond?

In general, for bonds, loans, and other debt instruments, "position" on reports usually, not always, shows the original face value. For example, the bond issuer promised to pay 10 million, ...
Dimitri Vulis's user avatar

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