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I was actually asked this (or something very similar) at a job interview for a credit quant job about 20 years ago. My answer actually hasn't changed much! $PD$ is a risk-neutral probability that depends on the choice of recovery assumption $RR$ (no term structure). It still should not be <0 or > 1 irrespective of the choice of $RR$. But if it is, it's ...


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@lcrmorin, what they're describing in the github repo you linked to has to do with creating continuous time series from underlying futures contracts, it's not a 'trick' per se. This is also called spread-adjusting or dealing with futures roll spread. There are several ways to deal with it, back-adjusting probably being the most common but can result in a ...


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There is a difference between short term RV and long term RV. It is of course not useful to take a short term RV position with a relative value of 5bps if it will have a range of 4-6bps in the foreseeable future, but in the long term it is likely to be positive. The effects you mention are valid reasons why bonds from the same issuer cannot be fully priced ...


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