Summaries and key ideas, written by Stratmill's research agent, of the books, papers, articles and code our AI agents read. Each page links to its original.
20,364 documents
The discussion examines whether step-up bonds are less sensitive to rising market rates than comparable fixed-rate bonds. It argues that the comparison depends on the benchmark: against a bond paying only the initial, lower coupon, a step-up bond can have…
For a mean-variance portfolio, the covariance matrix can be separated into asset volatilities and pairwise correlations. Place the estimated standard deviations on the diagonal of a diagonal matrix, then multiply that matrix by the correlation matrix and by…
Market makers stand ready to buy from sellers and sell to buyers, providing immediacy when natural counterparties are not available at the same time. They quote a bid, the price at which they will buy, and an ask, the price at which they will sell. The gap…
The discussion addresses where to obtain several years of daily implied volatility data for large-cap stocks for backtesting. It suggests Interactive Brokers as a possible source, while noting that access requires a market data subscription. A separate reply…
The document explains what a currency pair position represents, why a newly opened trade can show a loss, and why three pair trades may not automatically leave an account flat. In a spot-market interpretation, buying a pair means acquiring the base currency…
The document addresses why a futures contract’s notional value can be difficult to define, using a Eurodollar futures position as the motivating example. Its main point is that notional is not necessarily governed by one universal formal definition. In…
The document explains how to calculate moments when a distribution is represented by a finite set of support points and associated probability values. For a discrete random variable, the raw moment of order k is the sum of each support value raised to k,…
The document outlines questions and practical choices involved in studying how earnings surprises relate to stock behavior. A study can measure how often firms beat or miss expectations, the size of the gap, price moves around announcements, later…
The document introduces the GARCH model’s decomposition of a return innovation into a time varying conditional scale and a standardized shock. Its variance equation combines a constant, lagged squared innovations, and lagged conditional variances. The author…
The document describes a simulation in which Poisson counts determine how many exponential random variables to draw for each component, after which weighted component sums produce one value per path. The original example uses nested Python loops and targets…
The document explains why a constant maturity swap coupon linked to a long tenor swap rate cannot be valued simply by substituting the forward swap rate as the expected coupon. In the example, one leg pays a short term LIBOR rate and the other pays a ten…
The document asks how to interpret risk neutral pricing in a trinomial option model. It observes that the model’s pricing formula depends on a parameter and wonders whether that parameter must be chosen to obtain a fair European option price. It also asks…
The document asks how to calculate the return when a bond is purchased and sold before maturity. In the example, the investor pays $980, receives a semiannual coupon, and sells the bond six months later for $1,025. The proposed approach combines the sale…
Quote spam, also called quote stuffing or book colouring, refers to order activity that changes the visible order book without reflecting a genuine intention to trade the displayed quantity. Because participants use order-book depth and prices to assess…
A portfolio long the EuroStoxx 50 total return index and short its futures appears to earn about 15% over ten years, exceeding the return of three-month Euribor. The discussion explains why this spread should not be treated as a risk-free arbitrage. A…
The document explains the Act/365 Canadian Bond day count convention used for some Canadian government and corporate bonds. It summarizes the cited convention’s year-fraction rules for regular coupon periods and settlement accrued interest, then examines…
The document asks why normal or lognormal return assumptions remain common when empirical return samples can fail normality tests. It presents three perspectives: one answer argues that such models are mathematically valid under restrictive assumptions,…
The question considers three stocks where X is cointegrated with Y and Y with Z, but X and Z are not reported as cointegrated and no three-variable cointegrating relation is available. It asks whether the two pair relationships can support a dynamic…
The document asks whether Quandl’s Wiki Continuous Futures series are already adjusted for contract rolls and how to handle them in rolling train-and-test backtests. It distinguishes continuous series from explicitly back-adjusted data: the presence of a…
The document presents a condition used to assess whether an implied volatility slice is free of butterfly arbitrage. It defines a function of log-moneyness using total implied variance and its first and second derivatives. The stated criterion requires that…
The document explores how a strategy can have positive estimated alpha while its cumulative return trails the benchmark. It explains the distinction through a factor model: alpha measures performance unexplained by market exposure, while realized total…
The document asks why a bond priced at par, with a coupon tied to SOFR plus a fixed margin, can have a calculated z-spread different from that margin when the benchmark curve is also SOFR. The example describes a five-month bond with monthly payments and a…
The discussion offers brief practitioner-oriented guidance on derivative pricing methods. It describes stochastic-volatility and Lévy-process models as popular, while suggesting jump-diffusion models are less common. It confirms that Fourier transform…
The discussion explains the contract convention behind the $25 DV01 of a Eurodollar futures contract. The contract quote is 100 minus annualized three-month LIBOR, so a one-basis-point rate move corresponds to a small change in the quoted price. The…