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 explains how to test MetaTrader 4 expert advisors and indicators when the live forex market is offline. Its main recommendation is the platform’s Strategy Tester, which can run historical backtests independently of live market hours. For…
The document considers a euro-based investor holding a US dollar S&P 500 ETF and asks how to calculate a minimum-variance hedge ratio against dollar depreciation. Although the question starts from the usual correlation-and-volatility formula, the answer…
The document explains how to interpret FX swap points and combine them with spot bid and ask quotes to obtain a forward outright price. In the AUD/USD example, the displayed swap points have the bid numerically above the ask, which signals that the quote…
The document illustrates how to estimate a future USD/CHF exchange rate from the current spot rate and the two currencies’ one-year interest rates. It grows one unit of each currency at its respective rate, then compares the resulting amounts to infer the…
The document asks whether momentum trading can serve as an alternative way to hedge currency exposure alongside forwards and options. It does not provide a momentum signal, hedge ratio, rebalancing rule, or worked example, so it offers little practical…
The document explains the accounting relationship between a country's current account, financial account, and capital account. In its simplified framing, a trade deficit corresponds to a financial account surplus of equal size, reflecting net foreign…
The document clarifies how to express an investment gain in a different currency. The key step is to convert the absolute profit or loss using the relevant exchange rate, rather than multiply a percentage return directly by the currency conversion factor.…
The document addresses how an investor whose spending currency is Polish zloty can manage currency exposure when holding or trading dollar-denominated securities through a brokerage account. The proposed approach is to sell accumulated US dollars for PLN in…
The document explains why currency binary options with the same exchange-rate trigger can have different prices when their payouts are denominated in different currencies. It frames the issue as a change-of-numeraire problem: a dollar-paid claim and a…
The post asks how to isolate equity performance from currency effects in a Brinson 1985 portfolio attribution when holdings use different currencies. It proposes expressing each holding’s value in the portfolio’s base currency before calculating its weight.…
The note asks why the Dollar Index and Hang Seng Index showed a negative rolling correlation in a short monthly-return sample. The included answer proposes an export competitiveness channel: a weaker Hong Kong dollar against the US dollar can make Hong…
The document explains how to value a European cash-or-nothing FX option when market quotes provide an at-the-money volatility, risk reversals, and butterflies rather than a volatility directly at the binary strike. One approach is to fit a volatility smile…
The document discusses ways to obtain interest-rate exposure in currencies outside the G10. Its answer recommends interest-rate swaps for intermediate and longer maturities and forward rate agreements, including non-deliverable versions where relevant, for…
The document asks whether geometric Brownian motion can represent second-by-second exchange-rate prices. Its main answer is that standard Itô diffusion models miss important high-frequency market features, including volatility clustering, weak return…
The document presents a textbook triangular arbitrage using quoted buy and sell rates from two FX dealers. The example cycles borrowed pounds through euros and dollars before converting back to pounds, producing a small surplus under the stated quotes. It…
The document clarifies what happens when an investor takes a long position in euro futures, correcting the idea that the trade involves borrowing euros and exchanging them for dollars. For a futures contract, the trader generally does not receive the full…
The document asks why spot foreign exchange is conventionally quoted and traded with settlement on a T+2 basis when overnight or T+1 transactions are also possible. The response points to the operational time historically needed to record trades, coordinate…
The discussion considers what additional time series might help a neural network forecast daily foreign exchange rates. Suggested inputs include currency crosses, interest rate differentials, yield curve slopes, and changes in rates, along with country-level…
The document explains how to read a one-month at-the-money EUR/USD volatility quote. Its example gives bid and offer levels and asks what units they use. The response says FX volatility is conventionally quoted as a percentage and interpreted as annualized…
The document clarifies how to interpret receiving the basis in a cross-currency basis swap when the basis is quoted on the non-US-dollar leg. It gives a negative JPY/USD basis example: the party borrowing yen pays yen Libor minus the quoted spread and…
The document derives the correlation between the log returns of an asset’s reciprocal price and another asset. Since taking the logarithm of the reciprocal negates the original log price, the transformed log return is the negative of the original log return.…
An extinguisher swap terminates when a specified credit event occurs. The discussion distinguishes bilateral structures, which terminate regardless of mark-to-market, from unilateral structures tied to a threshold, and describes zero-recovery and…
The document asks how to calculate the real return, in domestic terms, of an asset priced in a foreign currency. It establishes two ingredients: convert the foreign asset’s nominal price into domestic currency using the exchange rate, and adjust for…
The document considers which interest rates to use when testing covered interest rate parity between the euro and the US dollar. Its central point is that unsecured interbank rates, such as LIBOR and Euribor, include bank credit risk premia that can differ…