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3 votes

MM Proposition and the cost of debt

An assumption of no bankruptcy cost in the Modigliani–Miller theorem means that there is zero cost of financial distress in case of bankruptcy. Hence, the firm can go bankrupt, being unable to repay ...
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2 votes

Feller Condition (Cox-Ingersoll-Ross) source

For $x,K > 0 $, denote by $(X_t^x)_{t\geq 0}$ the unique strong solution of the CIR sde starting from $x$ at time 0. Define the following stopping time : $$\tau_{K}^x := \inf\left\{t\geq 0 : \quad ...
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3 votes
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Interest rate risk of a bond as a function of the coupon

Yes, the point made in the question is true; more fixed coupons all else equal leads to more interest rate risk. More precisely: more fixed coupons trivially (but well spotted) gives you more losses ...
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4 votes

Interest rate risk of a bond as a function of the coupon

Since duration is the primary risk of a bond, higher coupons tend to decrease the duration, and the risk of the bond.
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1 vote

falling flatforward curve in quantlib

Set the interest rate in the FlatForward construction to be ql.Compounded or ql.Continuous. ...
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2 votes
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Difference HJM Framework versus Short rate model

Most principal component analyses (PCAs) on historical data of yield curves find that typically a yield curve moves parallel flips from normal to inverse (or vice versa) twists (changes its ...
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