Blog Posts

The Cox-Ingersoll-Ross (CIR) Model is a short-rate mathematical model used in finance to describe the evolution of interest rates over time. Developed by John C. Cox, Jonathan E. Ingersoll Jr., and Stephen A. Ross in 1985, the CIR model is one of the most widely used interest rate models in the finance industry. Its primary […]

The Vasicek Model, named after its creator Oldrich Vasicek, is a popular short-rate mathematical model used in finance to predict interest rates. First published in 1977, it was one of the first models to describe the evolution of interest rates using stochastic calculus. The model’s primary purpose is to capture the mean-reverting behavior of interest […]

A short-rate model, in the context of interest rate derivatives, is a mathematical model that describes the future evolution of interest rates by describing the future evolution of the short rate. In finance, the short rate represents the instantaneous interest rate applicable for a very short period. It’s often called the “cash rate,” “repo rate,” […]

The risk-free interest rate is a fundamental concept in finance that serves as the baseline for evaluating various investment options. It represents the return on an investment considered to have no risk (i.e., no default risk), such as a government bond, over a specified period. This article looks at the measurement and proxies of the […]

A yield curve is a graph that plots the yields of fixed-income securities against their maturities. The maturities of the securities are typically shown on the x-axis, and the yields are shown on the y-axis.     A yield curve typically has an upward slope, which means that securities with longer maturities generally have higher […]

Fixed income analysis involves evaluating the value and risk of debt securities. These analyses play a role in deciding whether to buy, sell (short sell), hold, hedge, or avoid a particular security. Fixed income products, which primarily consist of bonds, are issued by various entities, including government treasuries, government agencies, companies, and international organizations. This […]

In finance and investment, one popular approach is the benchmark-driven investment strategy. This method involves tying the target return of an investment portfolio to a specific index or a combination of indices within a sector, such as the S&P 500. The ultimate goal for fund managers is to outperform the chosen benchmark and generate higher […]

Portfolio management is an essential aspect of the finance and investment world, which involves the strategic allocation of assets to optimize risk and return. A key area of focus in this discipline is the optimization of dedicated portfolios. (We wrote about dedicated portfolio theory here.) These portfolios are specifically designed to generate a predictable stream […]

In trading and investment management, numerous theories and strategies have been developed to help traders/investors achieve their financial goals. One such strategy is the Dedicated Portfolio Theory (DPT), which focuses on creating investment portfolios specifically designed to meet predetermined future cash flow needs. In this article, we’ll discuss the applications, examples, advantages, and disadvantages of […]

Copulas have become a valuable tool in the field of quantitative finance, particularly in the areas of trading, investing, portfolio management, and risk management. They are widely used to model and minimize tail risk, as well as in portfolio optimization applications. This article explores the various ways in which copulas are utilized in financial markets […]