(Un)Calculated Risk | by Peter Orr of Intuitive Analytics

Why Option Pricing Models are Wrong for Tax-exempt Issuers (Part 2)

Posted by Peter Orr on Feb 06, 2015

In Part 1 (a suggested read if you’re getting to this article first) we proposed 3 questions that determine whether bond option pricing models, in contrast to real-world option models, are appropriate for tax-exempt issuers analyzing their callable bonds:

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Why Option Pricing Models are Wrong for Tax-exempt Issuers (Part 1)

Posted by Peter Orr on Feb 03, 2015

"It's not how we make mistakes, but how we correct them, that defines us."  - Anonymous

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Hull-White add Weight to New Interest Rate Modeling Research

Posted by Peter Orr on Apr 04, 2014

Last summer I wrote an article describing a missing link in rate modeling that had been discovered in exciting new research by Nick Deguillaume, Ricardo Rebonato, and Andry Pogudin entitled The nature of the dependence of the magnitude of rate moves on rates levels: a universal relationship. This mouthful offered two simple takeaways. First, accurately capturing how rates are expected to change, particularly over long time horizons, is central to every rate risk management decision we face. And second, that so-called “standard models” that don’t provide for the observed fact that rates tend to change differently depending on their level aren’t so realistic nor as a result, very good at informing interest rate decisions like refunding opportunities.

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2013 Discovery - The Missing Link in Interest Rate Modeling!

Posted by Peter Orr on Jun 20, 2013

"There is no logical way to the discovery of these elemental laws. There is only the way of intuition, which is helped by a feeling for the order lying behind the appearance."  - Albert Einstein

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50 Years of UST Yields - How Well do Forwards Predict?

Posted by Peter Orr on May 17, 2013

"Despite its role in...finance, the expectations hypothesis (EH) of the term structure of interest rates has received virtually no empirical support." - Predictions of Short-Term Rates and the Expectations Hypothesis, Federal Reserve Bank of St. Louis

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1 thing to know - Bettors, Bookies, and Tax-exempt Debt Managers

Posted by Peter Orr on May 09, 2013

"Horse sense is the thing a horse has which keeps it from betting on people" - W.C. Fields 

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The ‘Formula that Killed Wall Street?’ or ‘Know A Bad Rate Model When You See It’

Posted by Peter Orr on Jun 19, 2012

"Copulas are generally an early doodling activity in an area." - Anonymous Street quant

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VIDEO: Cashflow Risk Statistics for Tax-exempt Debt Management

Posted by Peter Orr on May 01, 2012

"Anyone who stops learning is old, whether at twenty or eighty. Anyone who keeps learning stays young. The greatest thing in life is to keep your mind young."  - Henry Ford 

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VIDEO: SIFMA and LIBOR Interest Rate Model for Public Finance

Posted by Peter Orr on Apr 21, 2012

Lots of people think rate models are the sole domain of astrophysicists who've gone through a career change. In this video, we break down the details of a simple but very powerful interest rate model that captures the fact that variable rates....well, vary. It's a companion to our Cashflow Model Example.xls and whitepaper on Interest Rate Models for Liability Management.  Enjoy and let us know what you think!

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