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.
4,574 documents
The document describes how to represent a turn-of-month or turn-of-quarter effect in foreign exchange markets. It frames the trade as an FX swap whose near leg falls on the final date of the month or quarter and whose far leg falls on the first date of the…
The document compares two cross-currency option payoff structures. In the first, the payoff is denominated in currency Y and then converted into currency X at the prevailing spot rate; valuation can be carried out in Y and converted at current spot, without…
The document addresses how to infer call and put implied volatilities for an EUR/USD smile when market quotes include at-the-money volatility, risk reversals, and butterfly volatilities at selected deltas, but no separately labeled strangle quotes. The key…
The document asks how to turn country-level fundamental scores, such as GDP growth, into allocations across G10 currency pairs versus the US dollar. The response separates two problems: converting fundamentals into expected risk-adjusted returns, and…
The document describes the market action for settling an exercised call on EUR, quoted in USD, when the call writer does not already hold the currency to deliver. In its example, the strike is below the expiry spot rate. The writer can buy EUR in the spot…
The document works through how an FX call strike can be recovered from a quoted delta for a risk reversal. Its accepted answer applies the Garman–Kohlhagen model, using the currency pair’s forward rate, interest rates, volatility, and separate expiry and…
The document discusses how to find a forex broker that supports limit orders, client-to-client matching, and algorithmic trading. Responses distinguish retail brokers that may internalize customer flow from agency or ECN models, where orders can be matched…
The document asks how traders can exploit changes in the difference between futures prices and the underlying cash asset, including how futures roll and carry costs affect the strategy. The response suggests framing this as carry or roll trading, with…
The document explains cross-currency basis through the mechanics of funded swaps, in which counterparties exchange notionals at the start and return them at maturity. It distinguishes these transactions from a hypothetical unfunded swap, where coupon…
The document explains how FX strangles are quoted and priced when each leg has a different volatility on a delta volatility smile. A quoted strangle may instead use one volatility for both options. For a strike quoted strangle, the single volatility can be…
The example describes a euro-based investor buying US Treasuries while hedging the dollar exposure with short-term FX swaps. At the outset, the investor purchases the Treasury and enters a one-year swap: dollars are received and euros paid at the near date,…
The document distinguishes directional exposure from volatility exposure in an options position. Leaving delta unhedged means the position responds to movements in the underlying currency pair. A trader who wants to focus on volatility can offset that…
The document explains how an investment view favoring the yuan over the Singapore dollar can be expressed through foreign exchange instruments. It notes that onshore CNY convertibility limits direct implementation, so traders may use offshore CNH spot…
The document explains why pricing an American-style FX forward by calculating forward values at possible maturities and selecting the maximum is generally not a valid valuation method. An American forward allows exercise during a window, so its value depends…
The document explains how to test three exchange quotes for a triangular arbitrage opportunity. It identifies the currencies in each quote, derives the implied RUB-per-TRY cross rate by dividing the RUB/USD rate by the TRY/USD rate, and compares that result…
The document asks whether the difference between domestic and foreign risk-free rates determines an exchange rate’s drift only under risk-neutral pricing, or also describes real-world behavior. The question connects this distinction to two uses of…
The document explains why the VIX model does not translate directly into a universal volatility index for every asset class. VIX is described as the square root of a variance swap strike, calculated from traded equity index options; constructing a comparable…
The document clarifies what buying a call on EURUSD represents and how currency quotation conventions determine the payoff. EURUSD states how many units of the quote currency, USD, are needed for one unit of the base currency, EUR. A call on the pair is a…
The document addresses how to define drawdown when a strategy’s starting net profit and loss is zero. Its response is that drawdowns are generally measured against invested capital or account value, so the denominator is a funded base rather than raw…
The answer distinguishes funding the swap’s notionals and coupons from funding its mark-to-market exposure, which is the aspect more directly associated with funding valuation adjustment. It then considers the two payment directions of a GBPZAR…
The document considers an investor who borrows euros to buy US stocks and wants to offset the resulting EUR/USD exposure with currency futures. It explains why matching the initial euro borrowing amount may not maintain a precise hedge: the value of the…
The document raises a portfolio-hedging question: how to account for correlations between international bond returns and foreign-exchange carry returns when choosing currency hedge positions. It defines the relevant series as asset log returns and carry…
The discussion addresses conflicting Augmented Dickey–Fuller and KPSS results for several Central and Eastern European exchange rates. The tests use different null hypotheses, and their conclusions can vary with the inclusion of a trend, a drift, and the…
The document examines whether setting a forex profit target twice as far from entry as the stop loss guarantees profitability. It explains that a favorable payoff ratio alone is insufficient: without a market edge, trades reaching the farther target would be…