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.
12,303 documents
The document raises a data-quality question about occasional one-day jumps in a 12-month at-the-money call implied-volatility series for a bank equity. The observed values reportedly rise sharply for a single day and then quickly return toward their prior…
The note clarifies the distinction between unit gamma and dollar gamma for a variance swap. Unit gamma is expressed with an inverse-square dependence on the underlying price, while dollar gamma multiplies gamma by the square of the underlying price. This…
The document clarifies that the VIX is not a measure of protective-option trading volume. It is an options-based estimate of the market-implied variance over a forward horizon, expressed as volatility, and is related to the fair strike of a variance swap.…
The document explains how to estimate total and idiosyncratic volatility for an individual stock over a fiscal year. Total volatility is the sample standard deviation of daily returns, annualized by multiplying by the square root of the number of trading…
The document examines why interpolating five FX volatility quotes by delta and then plotting the same quotes against their transformed strikes can produce a different-looking smile. The accepted response attributes the change to interpolation sensitivity:…
The question asks whether “vol” in an equity, credit, and volatility liquidity-risk label means trading volume or volatility. The clues are database query and table names, along with columns including Vega, maturity, ticker, liquidity type, and PctVol. The…
The document examines how deterministic interest rates and dividend yields affect the asymptotic behavior of implied-volatility skew as option maturity grows. It starts from the forward price of a dividend-paying asset and notes that the Black–Scholes…
The discussion separates how traders use options from how options are priced. Options can provide leverage, insurance, or hedging, but those uses do not by themselves alter an option’s fair value under a risk-neutral pricing framework. The framework is a…
The document asks how to compare volatility forecasts from ARMA(1,1)-GARCH(1,1) models fitted to S&P 500 returns under normal, Student-t, and GED innovations. The author describes generating rolling forecasts with an out-of-sample period and asks whether…
This discussion explains how to calculate a portfolio’s expected return and volatility, then outlines how to find the global minimum variance allocation between two stocks. Expected portfolio return is the weighted sum of constituent expected returns.…
The document explains why a local volatility surface reconstructed from option prices need not match the implied volatility surface at the same strike and maturity. Implied volatility is the Black–Scholes volatility that reproduces an individual option’s…
The document asks how to assess a simulated return distribution and compare it with forecasts from another method. Its example uses historical returns to generate simulated paths over a short forecast horizon, then pairs forecasts with subsequent realized…
The document asks how to obtain LIBOR rates whose reset or maturity dates fall between the model’s predefined dates. It presents two approaches: use an arbitrage-free interpolation scheme designed for the displaced-diffusion LIBOR Market Model, or bootstrap…
The document asks how to differentiate a basket option price with respect to one constituent asset’s volatility. It lays out dependencies among the option price, basket forward, strike, aggregate volatility, and constituent forward, then applies the…
The document surveys research on calendar patterns in financial returns and volatility, with emphasis on whether Mondays differ from other weekdays. It points readers to broad reviews of seasonal anomalies and research on seasonality in equity factors. The…
The discussion describes how practitioners may trade options on currencies held near fixed exchange rates, with examples involving Gulf currencies, the Argentine peso, and the Eastern Caribbean dollar. It distinguishes the near-zero at-the-money volatility…
The document discusses validating a user-built Libor Market Model implementation when calibration to market volatility inputs does not reproduce cap prices. It recommends separating implementation errors from market-data or calibration problems by first…
The document asks how to estimate the expected one-day move of a spread between two futures contracts using their prices, implied volatilities, and correlation. One answer first estimates each contract’s daily move by scaling price times implied volatility…
The document explains why bucket Vega multiplied by changes in fixed volatility-surface points can miss P&L when spot moves options to different moneyness levels. Under a sticky-delta interpretation, an option may experience a volatility change from moving…
The document asks whether a listed option with a matching moneyness and remaining time to expiry can serve as a rough estimate for an option price at a future date. Its example considers a call with a year to expiry and asks whether, after nine months, its…
The document asks whether implied volatilities from a few options can be combined into a single 30-day volatility estimate. It explains that each option has its own implied volatility, so the values are not interchangeable components of one underlying…
The document examines whether to price a call option on a mutual fund using a risk-neutral return assumption or an estimated real-world return. It notes that historical volatility may be used when implied volatility is unavailable, but expected return…
The document proposes comparing volatility clustering in return series by fitting hidden Markov models with multiple volatility states. An information criterion such as AIC or BIC can help select the number of states, after which standard HMM estimation…
The discussion explains why the absence of calendar spread arbitrage is commonly expressed as non-decreasing total implied variance, defined as implied volatility squared times maturity, at fixed forward moneyness. It starts from the condition that…