New answers tagged fixed-income
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I did not tested it by now, but Google released a library similar to quantlib written in TensorFlow. It may be worthwhile to test it (and to post here your views on it), because once you are in TF, you can
easily distribute your computations over a grid of computers (including GCP or AWS)
if you are a machine learning enthousiastic: use it to backprop a ...
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from my experience calypso has a lot of issues with proper valuation of credit derivatives as well as simplistic instruments of fixed income world. Some of this is concealed. For example did you know that any convertible bond gets evaluated as a generic one?
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Well, you are fetching the dirty price by discounting the cashflows with a simple rate instead of compounded rate which is not really the most common way. Not sure if this is what you want.
You are essentially using the discount factors as:
$$DF_i = \frac{1}{(1+r_i * n)}$$
instead of
$$DF_i = \frac{1}{(1+r_i)^n}$$
If you change the last line to:
print("...
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Your problem formulation is wrong, you must use the Charnes and Cooper transformation.
This means that your constraint (mu-mu0)@y==1 must be (mu-mu0)@y==k and w=y/k, which implies that k==cp.sum(y).
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I believe the duration constraint and the proceeds constraint are not self consistent. You cannot satisfy both. The duration constraint alone fixes $N_1/N_2$ and $N_3/N_2$, so you cannot also satisfy the proceeds constraint.
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In your example, you're paying fixed 5 yr swap @ 2% and receiving 3ml @ 1.3%
The 2% is the fixed rate in force for the life of the swap. The 1.3% rate will be reset in 3 months.
When we speak about swaps, the Libor leg is referred to as the "funding" leg.
Perhaps viewing the swap as a collateralized bond position would be helpful. We have a fixed bond at ...
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Bonds are generally quoted in terms of Clean Price in the US market even though you would settle the transaction in terms of Dirty Price or the all-in price. This is because Clean Price does not include accrued interest on a daily basis which makes it relatively stable and static requiring infrequent updates or monitoring. The price change can then be neatly ...
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The quoting convention for almost all bonds is clean (without accrued) rather than dirty (with accrued, all-in).
Generally, bonds are quoted dirty in two cases:
1 A distressed bond that's expected to default (after default it trades on recovery)
2 In some foreign markets, it's just a market convention that all bonds are quoted dirty. (For example Brazil ...
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