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.
10,263 documents
The document examines an open foreign-exchange forward that lets its holder choose when to draw down or settle within a defined period, while requiring the full amount by maturity. The accepted response treats this flexibility as an option-like feature: at…
The document considers whether a bond future belongs in an interest-rate or credit-derivatives category. One response classifies it primarily by its contract mechanics: a bond future does not specify credit events that trigger a credit-derivative payoff, and…
The document asks how to establish convergence and estimate the convergence order of the Euler–Maruyama (EM) method using geometric Brownian motion (GBM). It distinguishes an empirical comparison of simulated means with the known GBM mean from a strong-error…
The document troubleshoots finding Black implied volatility from a cap price using a numerical root solver. It identifies two issues: the supplied cap prices use percentage-style values while the pricing formula expects decimal values, and the implementation…
The document explains the interpretation of two volatility measures: the SPX convexity spread, defined as variance swap volatility minus at-the-money implied volatility, and the convexity ratio, defined as variance swap volatility divided by at-the-money…
The document presents a Python attempt to reproduce results from Duan’s 1995 GARCH option pricing paper. It specifies GARCH parameters and a risk-neutral adjustment, simulates daily variance and innovations, evolves a stock price, and estimates a call price…
The document asks how long a standard implementation of the Longstaff–Schwartz Monte Carlo method would need to price an American put under Black–Scholes to more than ten digits of accuracy. It gives one practitioner’s response: their C++ implementation did…
The discussion explains the market rationale for moving cleared US dollar swap discounting from the Effective Federal Funds Rate curve to SOFR. The accepted answer links the transition to the broader effort to replace LIBOR, whose survey-based construction…
The discussion explains the intuitive connection between memorylessness and recombination in a binomial lattice. In a simple up-or-down process, two different sequences of moves can lead to the same value after two steps: one up followed by one down, or one…
The document considers why a swap exchanging one-month LIBOR for three-month LIBOR may carry a tenor basis spread. Its answer challenges the idea that the spread is simply compensation for differing credit risk. Shorter funding periods give the lender…
The document examines why a put option’s premium may rise by much less than its new intrinsic value plus its earlier out-of-the-money premium after the underlying falls through the strike. The explanation is that option Greeks describe changes in the total…
The document examines whether a market maker should reverse the usual cost-of-carry formula when quoting a bid for a forward. It develops the standard no-arbitrage relationship by considering a short forward position hedged with a purchase of the underlying,…
This note explains how to adapt QuantLib code after `DividendVanillaOption` was deprecated. The replacement is `VanillaOption`, constructed with the payoff and exercise terms alone; dividend information is supplied to the pricing engine instead. For a…
The document asks how a continuity correction for a discretely sampled diffusion’s minimum improves the weak convergence rate of a lookback option payoff. The approximation adjusts each simulated grid value by a term proportional to the local diffusion…
The document discusses whether a mark-to-market cross-currency swap with notional resets can serve as an effective hedge of foreign-exchange exposure under IFRS 9. It focuses on a hypothetical derivative used to represent the hedged item, noting a potential…
The document compares shorting an issuer’s bonds with buying credit default swap protection as ways to hedge long credit exposure. It begins by distinguishing the underlying position: someone short bonds may simply buy them back, while an investor who owns…
The document contrasts the real-world probability measure, which is intended to describe beliefs about outcome likelihoods, with the risk-neutral measure used for no-arbitrage pricing. Under the risk-neutral measure, discounted asset prices are martingales;…
The document raises a practical issue in valuing credit default swaps across many historical dates with QuantLib’s ISDA conventions. The author wants to calculate present value, points up front, or other measures for each date, using that date’s yield curve,…
The document compares two expressions for changing between equivalent probability measures associated with different numeraires. One expression gives the Radon–Nikodym derivative directly in terms of the two numeraires; the other is written as an exponential…
The document examines the relation between an option’s volatility, the underlying stock’s volatility, and the option’s elasticity. It asks whether this relation depends on the Black–Scholes model, referencing a textbook proof but supplying no derivation of…
The document asks how to infer a bond’s funding or repo rate from its CDS–bond asset-swap basis, including how to account for a bond trading above par. It mentions the C-spread as a possible adjustment for default probability but provides no calculation…
The document explains why the undiscounted value of a European option can be a martingale, using the maturity bond as numeraire. Under the associated forward measure, the option value divided by the bond price equals the conditional expectation of the payoff…
The discussion explains how to implement the Black–Scholes vega formula by clarifying the notation for the derivative of the standard normal cumulative distribution function. By the fundamental theorem of calculus, that derivative is the standard normal…
The document explains why North American investment-grade and high-yield CDX index series can appear to have unexpectedly different levels and volatility. The key is that the contracts use different quote conventions. Investment-grade CDX is quoted as a fair…