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.
1,033 documents
The document offers historical volatility and correlation estimates as starting points for a foreign currency option model with domestic equities, foreign equities, and an exchange rate. Using weekly observations over five years for the DAX, S&P, and EUR…
The document explains why Bloomberg’s FXFA and SWPM screens can show different rates and basis figures for a EUR/USD cross-currency swap. FXFA uses floating EUR and USD yields, while the example SWPM setup uses two fixed rates, so the coupon rates are not…
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 discussion explains how to interpret and scale Greeks for a GBP/USD call option. It emphasizes that the currency pair’s quotation and the chosen risk convention affect the sign and currency value of delta. A trader described as hedged by 50 deltas holds…
The document considers how to improve an Ornstein–Uhlenbeck model of EUR/USD when it understates large two-hour price ranges. The author has calibrated the process to historical mean, standard deviation, and total absolute variation, then explored adding…
The discussion explains why currency spreads can widen sharply around 22:00 GMT, corresponding to 17:00 in New York. Forex trading is decentralized, and liquidity can fall when major financial centers hand activity over or close for the day. Contributors…
The document describes how to express an unhedged US investment’s performance in euros. First, turn the dollar return series into a total-return price index, using an arbitrary starting value such as 100. Next, convert each index value into euros using the…
The document considers how to recover the risk-neutral density of an underlying at a given expiry from call option implied volatilities across strikes. It describes converting each implied volatility into a Black–Scholes call price, then applying the…
The document describes a market practice for estimating cross-currency basis between quoted maturity dates. Rather than interpolating the quoted basis or outright FX forwards directly, it presents a representation of the FX forward using spot, domestic and…
The document addresses how trade and investment payments can be handled when a country’s currency is not freely convertible, using Brazil as an example. Its answer gives a high-level principle: transactions may require approval from the relevant authorities…
The document describes how to estimate a foreign-exchange risk-neutral density from vanilla option data, in the context of comparing the distribution for GBP/EUR around two historical dates. The required inputs include option prices across strikes and…
The document explains how forward delta for a vanilla foreign-exchange option relates to a hedge using a forward contract. Under the stated Black pricing setup, differentiating the call value with respect to the outright forward rate gives a discounted…
The document discusses reward design for reinforcement learning applied to foreign exchange hedging. A typical objective combines portfolio gains with penalties for risk, such as variation in portfolio value, and for trading costs associated with changes in…
The document examines why an FX data feed from OANDA, accessed through an R package, includes Saturday and Sunday observations while another data source shows business-day records. The questioner suspects that weekend values might be imputed or interpolated…
The document considers how to convert long-run U.S. dollar return series into euros when the euro did not exist for the full sample. It suggests using the Deutsche Mark against the U.S. dollar as an approximate predecessor series for EUR/USD, giving…
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 explains the economic reason bid and ask sides may appear reversed when deriving implied interest rates from an FX forward. A long AUD forward is described as a sequence: borrow USD, exchange USD for AUD at spot, and lend AUD. Each leg has its…
The answer interprets “near choice” as dealer jargon for a spread whose midpoint is close to zero. For a risk reversal, the proposed meaning is that buying one direction of the spread or the reverse direction costs roughly the same, with the trader…
The discussion asks whether high-frequency foreign-exchange ask quotes are considered less reliable than bids. The answers reject that general rule: they describe FX quotes as actionable and argue that both sides are needed to construct a mid-price and then…
The document distinguishes geometric Asian options, often introduced in textbooks because they admit an explicit Black–Scholes pricing formula, from the contracts used in practice. The answers disagree somewhat about whether geometric Asian options trade…
The document asks how to make a trading bot imitate a typical nonprofessional foreign exchange trader, including whether such traders can be treated as acting randomly regardless of market conditions. The response rejects assuming random behavior as a sound…
The document asks whether currency forwards that satisfy SABR dynamics individually will retain that form when combined through an FX triangle. Treating the cross rate as the product of two diffusion processes, the answer derives restrictions from matching…
The document raises a question about measuring the cost of a currency hedge or short position using an FX forward. It compares the forward-to-spot percentage change for EUR/USD with a quoted estimate of the three-month cost of being long euros and short…
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…