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 asks whether log returns can serve as the risk-factor change in a second-order Taylor approximation of portfolio PnL, or whether the change must instead be the arithmetic difference in the FX rate. The answer treats the product value as a…
The document introduces several non-vanilla foreign exchange products as possible subjects for simulation-based pricing: target accrual redemption forwards or notes, accumulators, and power reverse dual currency structures. It describes features such as…
The document explains the instantaneous or cash FX rate as the rate for settlement today, distinguishing it from tomorrow (T+1) and spot settlement (typically T+2). Overnight (ON) and tomorrow-next (TN) swaps bridge those settlement dates. Combining the…
The document asks how to combine bid and ask depth from several FX liquidity providers into one aggregated book. Simply sorting bids from highest to lowest and asks from lowest to highest can produce a crossed displayed market, where the best bid exceeds the…
The document considers how a US investor with euro-linked returns might update an FX hedge every month if the hypothetical market offered only three-month forwards. It sketches a rolling approach: enter a three-month forward, then a month later enter an…
The document examines early exercise of an American call on foreign currency, with domestic and foreign interest rates. It presents a convexity and conditional Jensen argument to support the claim that early exercise is not optimal when the domestic rate is…
The document considers whether an ARIMA model for intraday trading should omit inactive or less liquid hours, using EUR/GBP as an example of a market whose variability changes over the day. Its main guidance is to distinguish modeling the full time-series…
The document explains that CAGR for periods shorter or longer than an integer number of years can use either calendar-day or trading-day annualization. The key requirement is to apply the same convention consistently when calculating and comparing rates, and…
The document gathers references for readers seeking to understand vanna, volga, and vega approximations in implied-volatility modeling. It points particularly to the vanna-volga method for constructing foreign-exchange volatility smiles and notes a…
The document explains why expected currency values need not be reciprocal when a currency pair is quoted in the opposite direction. In general, the expectation of an inverse is not the inverse of an expectation, a consequence of Jensen’s inequality. This…
The document asks how to test whether multiple news announcements affected exchange rates across countries. The proposed market model uses exchange rates as the dependent variable, stock market returns as a control, and event indicator variables. One…
This note explains how to represent a foreign-currency forward as a position in a foreign zero-coupon bond and an offsetting position in a domestic zero-coupon bond. If the exchange rate is quoted as domestic currency per unit of foreign currency, the…
The document examines why technical indicators might contain information and whether studies support their use. It describes limited general theoretical grounds, including bid–ask money flow as a possible signal of asymmetric information and cross-sectional…
The document asks how to simulate a large sequence of EUR/USD prices with a GARCH model, while targeting a specified level and standard deviation. It frames the task as an implementation question: the author wants to understand how to build the simulation…
The document explains how to express returns on a US equity index in euros using the EURUSD exchange rate. It distinguishes currency conversion from currency hedging: converting the index measures its value in euros, so the index return combines the local…
The answer explains the basic structure of an FX swap as two opposite currency transactions on different dates. Depending on the dates, the pair may consist of a spot transaction and a forward transaction, or two forward transactions. It also notes that the…
The document explains what an FX 25-delta risk-reversal volatility quote represents and why it cannot be used directly as the volatility input for a Black–Scholes price of a risk-reversal option. The quote is the difference between the implied volatilities…
The document asks whether a stochastic interest rate model for foreign exchange satisfies uncovered interest parity. Its answer distinguishes the forward exchange rate from the expected future spot rate, showing that equality depends on which probability…
The document discusses terminology for combining market prices while evaluating potential foreign-exchange arbitrage and for describing a trade after only some legs execute. It suggests calling a nonstandard combination of products a synthetic spread, and…
The document asks whether the often repeated claim that most retail foreign exchange traders lose money is supported by detailed statistics. It is interested in the distribution of client gains and losses, and whether results vary over time, by country, or…
The document considers whether valuation of a notional-reset cross-currency swap should account for the relationship between exchange rates and interest rates. In the example, one leg’s notional is reset using the spot exchange rate at the start of each…
The response sketches how a forex broker can offer leveraged trading without separately arranging a loan for each customer. A client holds a position through a credit line from the broker, while the broker aggregates or manages its customers’ positions using…
The document distinguishes convertibility risk from the broader idea of foreign exchange markets stopping. Convertibility risk arises when a government legally bars conversion of its currency into another currency, creating a cross-border exposure for…
The document distinguishes relative purchasing power parity (PPP) from price-level PPP, two approaches that can produce different estimates of an exchange rate. Relative PPP projects exchange-rate changes from inflation differences between two countries over…