The thing with micro RV trades is that you'll almost always be right, EVENTUALLY, but frequently, the interim losses are just too hard to bear...The Solly model is pretty useful for trading micro RV. As to big curve trades, it's as difficult to interpret as other simpler methods.

<r>Typically, the US Treasury curve is fit to coupon Treasuries, and rarely do we use STRIPS as inputs. This is because STRIPS trade differently (e.g., they have different tax treatment and different liquidity). Once a curve has been constructed from coupon Treasuries, you can then compare the STRIP...

<t>The paper talks about how they estimate yield curves using coupon bonds. Basically, you parameterize your discount curve as the NS model. Given a set of betas, you could calculate discount factors for any maturity. Therefore, you can price any fixed-rate coupon bonds. All you have to do is to use...

<t>The 2003 episode was probably one of the most famous "convexity hedging" event. Here's a quote from a research note --An important technical factor driving intermediate swap spreads is mortgage convexity hedging. Mortgage duration tends to increase when rates increase. Mortgage hedgers would then...

<r>Typically the inputs would be a large universe of bonds. So you'd need the bonds' coupon rates, maturities, and prices. You can then apply the Nelson-Siegel model to obtain a best-fit curve that best approximates the prices of all these bonds. See <URL url="http://www.federalreserve.gov/pubs/feds...

<r>QuoteOriginally posted by: bearishFor general reading in this spirit I like this paper Cochrane & Piazzesi. Cochrane's book also comes well recommended. You may also want to take a look at the later paper from the FED research program by D'Amico, Kim and Wei (2008). Unlike Kim and Wright, the...

<t>Thanks for the replies. Yes DOV stands for delivery option value.Here's a hypothetical scenario, let's assume we have one security in the deliverable basket maturing on June 30, 2015. Let's also say that we know in three months' time, a new security will be issued also maturing on June 30, 2015. ...

<t>I've been working on a Treasury futures DOV model. One difficulty I ran into is how to incorporate notes/bonds that haven't been auctioned but could potentially be delivered. The maturities of these securities can be easily inferred based on recent auction patterns. The coupon rates are quite tri...

<r>The "Yield Curve Modeling" chapter of "Quantitative Analysis, Derivatives Modeling, and Trading Strategies" is basically an excerpt of the paper -- most parts of the chapter is from the paper word for word(<AMAZON id="9810240791" url="http://www.amazon.com/QUANTITATIVE-ANALYSIS-DERIVATIVES-MODELI...

you could use short-dated coupon bonds, but it's perhaps best to use repo rates.

<t>I'm trying to perform PCA on US Treasuries and attempted a few strategies:1. Load in the yields of all ~240 Treasuries and perform PCA on their historical yields (if a security doesn't have a long enough history, spline fitted yields are used)2. Perform PCA using fitted par yields. Then for each ...

<t>Hi David,sorry but this is not my question. I'll try to make the question more concrete: suppose we have a 10% coupon bond maturing on 6/30/2015 for settlement on 6/1/2010. Using conventional bond pricing formula, the next cash flow $5, which occurs on 6/30/2010, will be discounted by (1+r/2)^(-2...

<t>Hi all,I have a question regarding how to deal with day count inconsistencies in a curve fitting setting. Suppose we have a bond maturing on 6/30/2015 for settlement on 6/1/2010. Then the exponents (T*2) in the standard bond pricing formula should be 29/181=0.1602, 1.1602, 2.1602, ... But for the...