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.
779 documents
The discussion addresses whether negative interbank rates should be floored at zero when valuing FX forwards or futures. The answer argues that market participants can lend and borrow at negative rates, so valuations must reflect those rates: replacing them…
The document considers an option that pays the difference between two stock prices at maturity only if the first stock stays above the second throughout the option’s life. It presents a model-free replication argument: hold one share of the first stock and…
The document explains how borrowing and financing support ETF market making, creation and redemption, and arbitrage when ETF prices diverge from their underlying holdings. Market makers may finance temporary inventory, borrow securities, use repo, or provide…
The document explains the net basis in a Treasury cash bond and futures trade, addressing why it may be negative even though it is associated with delivery options. A negative reading does not by itself establish an arbitrage opportunity: funding constraints…
The document raises a practical question about applying triangular arbitrage to CFDs. It describes a supposed mispricing across EUR/USD, USD/GBP, and GBP/EUR, then asks how to account for opening three long positions, keeping them open, and closing them into…
The document compares two ways to estimate the price of a European call at a strike and maturity absent from the market: interpolate neighboring option prices directly, or interpolate model inputs such as implied volatility and then reprice with…
The document derives the fair delivery price for a three-year forward on thirty dividend-paying assets using a replication argument. Buy the assets at spot by borrowing their cost, invest the interim dividends, and compare the resulting time-three cash flows…
The document asks what model-free finance means and presents two possible interpretations. One strand studies which derivative prices are consistent with the absence of arbitrage, using current prices of traded options on the same underlying rather than…
The document compares two definitions of arbitrage in a single-period market with a risk-free asset. One requires a zero-cost portfolio whose payoff is nonnegative in every state and positive in at least one. The other states the condition using discounted…
A box spread combines two option conversions at different strikes and the same expiration. The underlying positions offset, while the option premiums create an initial cash inflow or outflow against a fixed settlement value. The answer describes the…
The document asks whether a short position in the three-month VXV index and a long position in a two-month VIX future can lock in a volatility spread. The proposed reasoning is that both positions might converge to VIX exposure at the future’s expiration,…
The document distinguishes a speed advantage in reacting to market data from arbitrage in the stricter sense of exploiting price differences. It describes how direct exchange feeds can reveal quote changes before a slower consolidated feed, allowing a…
The explanation connects currency basis swap (CBS) rates to FX forward pricing in the Garman–Kohlhagen currency option model. A forward rate can be taken directly from the FX forward market or derived from spot and the two currencies’ interest rates using…
The document addresses how to discount a payment when the yield curve uses one day-count convention and the instrument uses another. Its central principle is that the discount factor for a given payment date must be the same regardless of how the rate is…
The document asks how to detect arbitrage in a series of call option prices with a common maturity and different strikes. It proposes checking familiar static relationships, including butterfly arbitrage and monotonicity of call prices with respect to…
The document compares two ways to value an investment whose expected cash flows grow exponentially. Strict present value discounts each future flow at the risky project rate from its payment date back to today. The alternative first values the stream at the…
The document examines an apparent conflict between two presentations of European put-call parity. One writes the call-minus-put value as the discounted difference between forward price and strike; another presents it as the undiscounted difference. The…
The document asks why financing rates implied by synthetic equity forwards are near money-market benchmarks for easy-to-borrow stocks in some regions, while appearing higher relative to the cited benchmark in the United States. It focuses on the repo…
The document asks where to obtain long histories of arbitrage basis measures, such as the difference between on-the-run and off-the-run securities. It offers both direct sources for precomputed measures and sources from which researchers could assemble their…
The document explains why interest rate parity using two money market curves and spot FX may not reproduce traded FX forward prices. A cross-currency basis captures the difference between the parity-implied result and market pricing, reflecting funding…
The document surveys approaches to interpolating option prices or implied volatility while preserving no-arbitrage properties. It recommends normalizing for drift and dividends and working in forward moneyness rather than absolute strike; the resulting price…
The document explores whether risk-neutral derivative pricing can be understood through conditional expectation. It sets up a one-period binomial model with a stock, a bond, and a call payoff, then writes the option value as the discounted expected payoff…
The document asks why otherwise comparable swaps traded through different clearing venues, such as CME and LCH, may have different quoted rates. It proposes evaluating the basis by considering the costs and risks of buying one swap and selling the other, and…
The document asks how to state an arbitrage strategy in a three-period market model, where the discounted risky asset can take different values over time. The proposed strategy waits until the first period and buys only if the asset is priced at 8, then…