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 note explains the convexity adjustment between forward rate agreements and interest-rate futures. It rejects the common explanation that daily futures margining alone creates the difference: collateralized FRA cash flows have a comparable reinvestment…
The note addresses why implied volatilities calculated from option prices differ across strikes. It explains that Black–Scholes implied volatility is the volatility input that reproduces a given market price under the model; when the model assumes a single…
The note outlines a process for building a UK equity sample for Fama–French five-factor or q-factor asset-pricing research. It favors Worldscope UK over combining the active UK securities list with the dead-stock list because accounting data is more…
The note explains why a CDS premium leg includes an accrual-on-default term alongside scheduled spread payments. Because default can occur between coupon dates, the protection seller is owed premium for the portion of the period elapsed since the last…
The document asks why a strongly path-dependent option’s value is written as a function of the asset price, time, and an accumulated quantity. The payoff depends on a path summary defined as the time integral of a function of the asset price and time. Since…
The question describes using QuantLib to price options from a dataset containing contract start dates, expirations, and strikes. The proposed workflow groups contracts by expiration, supplies implied volatilities and market inputs to Heston model helpers,…
The discussion compares graphical machine-learning environments such as RapidMiner, KNIME, and WEKA with programming tools including R, Python, and scikit-learn. It frames the choice around platform familiarity, learning time, dataset size, need for…
The discussion examines how to tell whether a market-timing strategy adds skill beyond exposure to broad market returns. A strategy that is mostly long during a rising market may appear successful while offering little independent evidence of an edge. One…
The document considers whether a stock market maker can profitably quote on an exchange when inventory arrives from customer trades or another desk at an unpredictable rate and size. The response treats inventory changes as information for the pricing model:…
The document outlines a first-order way to estimate the mark-to-market PnL of a CDS as its maturity shortens and its market spread changes. From the protection buyer’s perspective, it expresses value using the difference between the market spread and the…
The document explains why an outright FX forward can have theta even though it has no option-style time value. It frames theta more broadly as the change in a position’s value when time advances while market inputs are held fixed. In an FX forward, this…
The document asks how to compare a volatility arbitrage strategy’s Sharpe ratio with those of established funds. It describes volatility arbitrage broadly as positioning for the difference between implied and realized volatility, often by receiving implied…
The document considers ways to hedge a long SPY position against a substantial decline: a volatility-linked ETF, an inverse leveraged ETF, and put options. It sketches possible gains and costs for each, but the proposed payoff estimates are uncertain and are…
The document distinguishes the CAPM’s theoretical expected-return relation from Jensen’s alpha as a measure of realized portfolio performance relative to an estimated benchmark. It presents the CAPM relation between expected excess return and beta, then…
The document asks whether a forward price under the risk-neutral measure follows the same drift as a spot price, and examines pricing a payoff tied to a forward maturing after the payoff date. It sets out a geometric Brownian motion model for spot and…
The document derives the differential of a time integral whose integrand is a function of an Itô process. It first considers the integral of the process itself, substitutes its drift and stochastic-integral representation, and applies stochastic Fubini to…
The document addresses why option implied volatility may show a smile or a directional skew, and whether turbulent markets necessarily make one pattern more likely. Its central distinction is that a smile reflects a premium across the wings associated with…
The document explains that regression on prices and regression on returns answer different questions in pairs trading. Regressing returns, or examining their correlation, describes how the assets’ short-term movements relate. The resulting weights can help…
The document discusses how to improve a bank’s estimate of the maturity of non-maturing chequing deposits for funds transfer pricing. The starting method assigns active accounts the historical average time until full withdrawal, split by customer…
The document derives the Black–Scholes price of a claim paying the terminal stock price multiplied by its logarithm. It changes from the risk neutral measure associated with the bank account to the stock measure, applying Girsanov’s theorem to adjust the…
The answer considers whether option positions can combine long gamma with short volatility, or short gamma with long volatility. It argues that a short-dated long straddle against a longer-dated short straddle does not provide the proposed combination, and…
The response offers VIX thresholds as a practical way to describe market volatility levels. It cites historical and practitioner conventions in which readings around 20 indicate heightened concern and readings above 30 are associated with significant market…
The question asks how to adapt Black’s approximation, commonly used for American calls on dividend-paying stocks, to price puts when dividends are discrete. The response does not derive a put-specific version of Black’s approximation. Instead, it points to…
The discussion explains two identities used in variance swap analysis. Applying Itô’s lemma to the log of an asset price shows that its quadratic variation can be written as twice the integral of the asset’s proportional price change minus twice the change…