Fixed Income Flashcards
Define the spot rate and forward rate?
Define the spot curve and forward rate?
What is the par curve?
YTM is the expected rate of a return on a bond if…?
YTM is. a poor proxy for E(r) if …?
With an upward sloping spot curve the forward curve is …? If level and shape of spot curve not expected to change or rise to forward curve then how would achieve the highest total return?
What is the swap rate, what is it based on and describe the swap curve?
What is the swap spread?
What is the Z-spread and I-spread?
What is the TED-spread, Libor-OIS spread and the SOFR?
What is the pure and local expectations theories?
What is the liquidity preference theory and the segmented markets theory?
What is the preferred habitat theory and shaping risk?
What is the three factor yield curve model?
Explain the technique of riding/rolling down the yield curve?
Explain the term structure of yield volatility?
What are the three measurements of yield curve risk and which allow for shaping?
What happens to the yield curve from bull/bear steepener/flattener?
How does the maturity structure and investor demand affect yields, what are the active mangement strategies in response to rate increse/decrease and curve flatten/steepen
ow - overweight
uw - underweight
What is arbitrage, principle of no arbitrage, law of one price, arbitrage opportunity of value additivity ?
What is the arbitrage opportunity of dominance and what is an arbitrage free valuation?
What are binomial interest rate trees?
How to generate an interest rate tree and what two things do you need?
How to calculate the forward rate in next period?
Once all first pass interest rates are populated you…?
Backward induction example?
Calibration example
Explain a pathwise valuation?
Describe a monte-carlo simulation and when it would be used?
Describe the 5 steps in the MC simulation to fit to the spot curve?
What are term-structure models? What is the interest rate factor and interest rate process?
Class of models: Describe arbitrage free and equilibrium term-structure?
Describe the two types of equilibrium models (CIR and Vasieck)?
Describe the two types of arbitrage free models: Ho-lee and KWF?
Summarise the four models by type, short rate, drift term, volatility and if negative rates?
What are embedded options in bonds? Describe a bond with a call option?