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.
21,023 documents
The document asks why a project option valued with real-world probabilities and the project’s required return differs from a risk-neutral valuation. Its binomial example has a successful project value of $10 million, an unsuccessful value of $2.7 million, an…
The note explains how a conditional expectation at a specific asset level can be expressed as a ratio of expectations weighted by the Dirac delta function. For a terminal asset value and a random variance, the numerator weights variance by the event density…
The document asks why a generalized linear model’s design matrix is assumed to have full column rank and whether maximum-likelihood estimation can proceed when it does not. The response connects rank deficiency to non-identifiability: if columns are linearly…
The document describes a reported pattern of month-end declines in the Effective Federal Funds Rate and asks why it weakened from mid-2018 through mid-2021 before appearing again. It presents bank balance-sheet window dressing to improve reported liquidity…
The document explores reducing a large ETF or equity universe before portfolio optimization. Suggested approaches include clustering return series using correlation-based distances, examining PCA loadings to group assets with similar behavior, and using…
The document asks how to evaluate a Laspeyres index built from five oil and energy stocks, intended for use in mean-reversion allocation across asset classes. The central suggestion is to measure tracking error or tracking efficiency: compare the index’s…
The document asks whether an anomaly detector can be trained on normal gift-card activation transactions and then evaluated on anomalous cases. It also describes a setting with no reliable fraud labels and transaction-level fields such as merchant, location,…
The document works through an Itô-calculus exercise involving two independent Brownian motions. It defines a process as their product minus one half of the time integral of the sum of their squared values, then differentiates that process using the product…
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 compares smoothing based on moving averages with two outlier detection approaches: global winsorization and local outlier factor analysis. Winsorization caps values at selected distribution quantiles, while a local method can flag unusual…
The document discusses a binomial no-arbitrage argument for pricing an option. A portfolio holds one option and shorts a quantity of the underlying chosen to offset the difference between the option values in the up and down states. If that hedge makes the…
The document raises a practical fixed-income curve-construction problem: bootstrapping forward rates from on-the-run Treasury securities when their coupon dates do not align. It describes a proposed workflow that bootstraps forwards and then applies…
The document asks how to find the expectation of the product of two integrals of standard Brownian motion over the unit interval, one weighted by time squared. The response evaluates the product as a double integral and moves the expectation inside the…
The document considers a two-step factor analysis: estimate factor returns from cross-sectional stock-return regressions on firm characteristics, then regress individual stock returns on those estimated returns. It describes this as resembling a reversal of…
The document explains how to account for inflation when calculating an internal rate of return. Its method is to build a price index from the inflation rate, convert each cash flow into real terms by deflating it with the corresponding index, and then…
The document asks why a study of a two-factor Double Heston model calibrates against option-market observations from many Wednesdays across a year, rather than conducting a separate calibration for each date. It contrasts that setup with research using…
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 considers an arithmetic Brownian motion with constant volatility and asks how often it is expected to move a fixed distance from its current level, resetting the reference band after each crossing. The question is framed in terms of repeated…
The document explains that R-squared can be calculated for a robust linear regression, but its interpretation depends on how the fit statistic is defined. The conventional measure compares the sum of squared residuals with the total variation around the…
The document connects the fundamental theorem of asset pricing to a one-period binomial tree. Choose the probability of an up move so that the stock price discounted by the bond is a martingale under the resulting measure. Solving this condition gives the…
The document examines why the six-month point on a market-calibrated swap curve can differ from the published six-month LIBOR fixing. The explanation distinguishes the fixing from the market deposit rate used to calibrate the curve. A deposit instrument…
The document asks why a portfolio’s simple return is expressed as a weighted sum of its assets’ simple returns, since directly comparing portfolio value at the start and end appears to produce a different formula. The resolution is that portfolio weights…
The document raises a question about calculating rolling volatility for a PRIIPs category 2 stress scenario. The asker has calculated the initial sequence of log returns but is unsure how to apply the formula shown in presentation slides and reports getting…
The document asks whether the Incremental Risk Charge (IRC), especially its treatment of default and rating migration, should be considered market risk or credit risk. It compares IRC with Credit Valuation Adjustment (CVA) and questions whether IRC is better…