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.
4,613 documents
The document asks whether a short-volatility strategy using option strangles should target a fixed premium or a fixed vega, with the aim of improving the strategy’s risk-adjusted return. The responses distinguish the limited premium collected from the…
The document defines portfolio exposure measures using the dollar values of long positions, short positions, and cash. Long value is aggregated as a positive amount, while short positions are treated by their absolute dollar value when calculating total…
The document raises how to estimate a portfolio’s expected daily movement in dollars from historical asset prices and current positions. Its portfolio contains long and short exposures, and some instruments have contract multipliers that make one unit…
The document considers a classifier that predicts whether a fixed target or stop is reached first. Since many trades may offer little predictive edge, it questions whether ordinary binary cross-entropy is well suited to selecting only cases with favorable…
The answers describe uses of volatility outside options trading, focusing on risk measurement rather than forecasting the direction of prices. Higher volatility signals that returns may fluctuate more, so a trader targeting a fixed amount of risk may need to…
This note considers how to reproduce a binary payoff on the winner of a best-of-seven series when bets are allowed only on individual games. The target pays a fixed amount if one team wins four games first and nothing otherwise. The proposed approach models…
The document asks how to calculate daily returns for a changing, equally weighted long-short stock portfolio. It gives an example with three long positions and one short on the first day, followed by one long and two shorts on the next day. The proposed…
The document asks how to choose a wager for a game with several possible payouts without relying solely on the Kelly criterion. It gives a discrete outcome distribution and raises expected value reasoning, similar to evaluating a poker pot, as a possible…
The document studies a repeated betting game in which cards of two colors are revealed without replacement, so the chance of the next outcome changes with the remaining deck. It presents two approaches to choosing bets. One answer estimates the win…
The document explains how to manage leverage in a mean-variance portfolio optimization with active weights. It reframes holdings as total portfolio weights and adds a penalty proportional to the sum of their absolute values. This absolute-value term is an L1…
The document formulates a portfolio allocation problem for a long-short universe of stocks. Each position’s expected return is reduced by a slippage estimate that rises with trade size relative to daily volume. The proposed objective maximizes aggregate…
The document poses a portfolio allocation problem for two assets with stated expected returns and equal volatility, asking how the choice might change when their correlation is positive one, zero, or negative one. It raises the idea that when correlation is…
The document uses a repeated dice wager to explain expected value. A roll pays a gain when the die shows six and incurs a loss otherwise. Weighting each outcome by its probability gives an expected profit per roll; over a fixed number of independent rolls,…
The document addresses why a short position’s return can seem undefined when measured against the zero upfront cost of borrowing an asset. It reframes the short as a liability: the short seller owes an asset whose market value changes over time. The…
The document explains how to interpret a hedge ratio estimated by regressing one stock’s log price on another’s. The ratio describes the relative percentage sensitivity of the two stocks: for example, a ratio of two means that a one percent logarithmic move…
The discussion asks whether an asset pricing model can explain observed stock market anomalies and receive broad empirical support. The response does not provide a tested pricing model or a comparative review of empirical results. Instead, it outlines a…
The document raises a position-sizing problem: realized trade returns may correlate only weakly with estimated payoffs in advance. If that relationship is weak, sizing bets strictly according to a Kelly estimate could assign too much capital to trades with…
The document asks whether the Kelly criterion can be adjusted to maximize risk-adjusted returns because full Kelly sizing can produce substantial volatility. The answer explains that Kelly chooses leverage to maximize expected geometric growth. Scaling…
The note asks how to calculate bankroll growth when the same fraction of the current bankroll is invested in a sequence of opportunities with specified payoff multipliers. Its worked example starts with a bankroll of $100, invests 10% at each step, and…
The document addresses why a CDS position with zero initial mark-to-market does not have a meaningful conventional return when profit or loss is divided by initial value. It presents alternative denominators tied to the resources or exposure associated with…
The document asks how to size a position in a volatility ETF to offset the market exposure of a long stock position. It compares this proposed hedge with using an at-the-money covered call to bring the position’s delta to zero, and notes the tendency of the…
The answer describes a trading approach for returns generated by a known two-state Gaussian hidden Markov model. Rather than infer regimes from moving averages or other heuristic indicators, it recommends updating the probability of each hidden state from…
The document raises a practical question about trend-following backtests using ten-year bond futures. Panama-style back-adjustment can create negative historical prices, making ordinary simple or logarithmic percentage returns unusable for those…
The document challenges the idea that frequent turnover makes portfolio optimization irrelevant. It describes an integrated approach in which changing return forecasts feed a portfolio optimizer, and the optimizer itself produces trades. Active strategies…