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.
9,797 documents
The document explains why a binomial tree for an option on a futures contract can model futures prices directly rather than modeling spot and converting it at every node. Under the risk-neutral measure, futures prices are martingales, so they can be…
The document asks how to construct a USD one-month LIBOR forward curve for pricing a one-month interest rate swap. It describes a proposed curve-building setup using one-month deposit rates at the short end, basis between one- and three-month rates, and a…
The document explains how Black-Scholes and Black-76 represent the underlying and carry when valuing European options. Black-Scholes is framed around spot, with rates and carry components represented in the model, while Black-76 uses the forward price, which…
The discussion contrasts a fair coin betting idea based on recent head and tail sequences with a proposed short duration Dow futures trade triggered by an up, down, up price pattern during an uptrend. For a fair coin, each toss is independent, so prior…
The document explains the difference between the Black-Scholes equation for an option on a security and Black’s equation for an option on a futures contract. The security equation includes a term involving the underlying price, the option’s sensitivity to…
The document concerns historical options data on gold futures and asks what the symbols L01 through L31 represent. It contrasts those codes with the standard American-style gold futures option symbol and the listed weekly option symbols, showing that a…
The document describes a daily momentum strategy in swap rates. A positive signal leads to paying fixed and receiving floating, creating short-duration exposure; a negative signal leads to receiving fixed and paying floating, creating long-duration exposure.…
The document considers a portfolio holding equal long and short positions in the same futures contract and expiry at the same traded price. It explains that under this setup, the positions offset one another, leaving the portfolio with no net exposure to…
The question asks how to represent a two-factor commodity futures model in QuantLib. Its instantaneous return combines two Brownian shocks: one whose loading decays exponentially with time to futures maturity, and another whose loading increases toward a…
The document distinguishes earning a spread as a market maker from taking directional positions based on client trades. In equities and futures, a market maker may seek to turn over inventory quickly and earn the bid–ask spread; client profitability can…
The document explains what happens when counterparties trade an exchange-listed calendar spread between futures months. It distinguishes the spread market, where the parties agree on a spread price, from the later reporting of the transaction as two outright…
The document reports unexpectedly low values from a Bachelier-style formula for an exchange option on futures. The author observes that a plotted price surface appears to approach half the intrinsic value at maturity, questions whether this is consistent…
Treasury futures DV01 can jump when the cheapest-to-deliver (CTD) bond changes, making the current CTD’s sensitivity an incomplete measure of contract risk. The document describes option-adjusted DV01 (OA DV01), which accounts for the delivery choice and…
The document explains that a futures contract’s delta with respect to its underlying is not always exactly one. Under risk-neutral pricing, a futures price is the conditional expectation of the underlying’s value at maturity. With a geometric Brownian motion…
The document raises a practical question about trend-following backtests using ten-year bond futures. Panama-style back-adjustment can create negative historical prices, making ordinary simple or logarithmic percentage returns unusable for those…
The document considers whether Bachelier’s normal model for futures spread options can be adjusted to account for nonzero skewness and excess kurtosis. The motivating case is a large transaction involving a basket of roughly twenty underlyings, where the…
The document considers how to construct a SOFR discounting curve for valuing derivatives as discounting transitions from the Effective Federal Funds Rate. It challenges the premise that no usable SOFR term structure exists: the response points to a liquid…
The document explains why a long option on a futures contract may face a margin requirement even though the premium limits the buyer’s loss on the option itself. Futures accounts use different collateral and settlement conventions from stock accounts, and…
The method tests whether negative futures returns are associated with higher subsequent volatility. It recommends using adjusted historical futures prices that account for contract rolls, then calculating a monthly volatility measure from squared daily log…
The discussion outlines a practical way to build a SOFR discount curve using term SOFR fixings for shorter maturities and fixed-versus-SOFR swaps for the longer end. It describes the swap legs as annual fixed payments on an Actual/360 basis and overnight…
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 examines how to hedge a government bond portfolio against interest-rate changes with Treasury futures. It sets out a portfolio’s market value and modified duration, the deliverable bond’s duration, contract value, and a six-month rate, then…
The discussion reviews a paper claiming that changes in futures open interest predict returns in related asset classes, including commodities, Treasuries, and equities. One response reports that an advisory analysis found predictive evidence after…
The document explains how to represent a calendar spread between two futures expiries using options. For each maturity, a long call and short put at the same strike and expiry form a synthetic futures position; combining the two maturities with opposite…