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 sets up a Heston stochastic volatility model for log price and variance, then states an exponential-affine conditional moment-generating function in the terminal log price and variance. It also presents a known expression for an unconditional…
The document addresses whether differentiating an accumulated stochastic integral requires adding an Itō correction term. For an integral whose integrand is the smooth function g of a process S, the differential of the integral is simply its current…
The document addresses how to interpret wealth, cash, and security holdings in the Grossman-Miller market-making model. It explains that total wealth includes both cash and the marked-to-market value of the asset, while trading at a given time must preserve…
This question describes a QuantLib issue that occurs when a pricing workflow changes the evaluation date to an earlier date after calibrating a hazard curve with UpfrontCdsHelper objects. The reported runtime error says the cash settlement date falls before…
The document discusses pricing and risk analysis for derivatives on dividends paid by constituents of equity indices, with particular interest in dividend futures. One response distinguishes futures from options: dividend futures are linked directly to…
The document concerns a Monte Carlo estimate of a European call option price compared with the Black–Scholes analytical value. The implementation uses antithetic normal draws: each simulated stock path is paired with one generated from the opposite shock,…
The document explains why an implicit finite-difference solution to the Black–Scholes partial differential equation can still produce large pricing errors when the log-price grid is too narrow. The equation is defined over an unbounded domain, while a…
The document raises valuation questions for a privately issued, illiquid Indian corporate bond with an amortizing principal schedule and a high coupon. It asks which components belong in a discount yield, how to update valuation over time, how to estimate a…
The document presents a curve-building setup intended to help benchmark a spreadsheet model for float-float cross-currency swaps. The question describes importing GBP, USD, and EUR par rates and cross-currency basis quotes, interpolating rates, bootstrapping…
The document considers the square of a geometric Brownian motion and asks how to derive its stochastic differential and quadratic variation. Applying Itô’s lemma to the function that squares the price adds a drift adjustment from the second derivative, while…
The document presents a simplified way to infer default risk from a bond’s credit spread. It relates the spread to loss given default and default probability through the credit triangle: spread is approximately the product of one minus recovery and the…
The document asks how the weather derivatives market is organized, how participants share information, and where historical data can be obtained. Its answer is limited: market information is largely not public, and data generally require paid access. It…
Nominal government bond pricing conventions vary across the US, UK, and euro area. The document identifies the Street convention in the US, the DMO convention in the UK, and the ICMA convention in the euro area, while noting that Germany also commonly uses…
The document asks how to calculate the probability that a discrete-time lookback put finishes in the money in a Cox–Ross–Rubinstein binomial model. Its payoff depends on the minimum underlying price observed along the path, rather than only the terminal…
The document asks how to approximate the difference between a SOFR futures rate and the corresponding forward term rate in a continuous-time affine term-structure model. It writes the bond price using deterministic functions of maturity and the short rate,…
The document answers a question about measuring the DV01 of a European interest rate swap when the yield curve is not flat. The proposed method is to value the swap using the current curve, bump the curve by one basis point, revalue it, and take the…
The document explains how to specify a three-branch asset-price tree when a single-period move can be up, middle, or down. The three branch probabilities and three move sizes initially leave six parameters. Probability normalization and matching the expected…
The document asks which parametric forms are commonly used to fit implied volatility smiles in VIX markets. It situates the question against SPX options, where the author says stochastic volatility-inspired and surface stochastic volatility-inspired forms…
The document explains how cash-settled options can create payment obligations and distinguishes collateral movements from final settlement. In bilateral or centrally cleared derivatives, counterparties may post margin as valuations change; eligible…
The document explains why faster mortgage prepayments tend to raise yield to maturity for a bond bought below face value, but lower yield for one bought above face value. It uses fixed coupon bond examples with different repayment dates to show how the gain…
The document clarifies why option volatility models may express moneyness using the underlying’s forward price or spot price. It distinguishes this choice from forward volatility, which means volatility over a future time interval. Forward based moneyness…
The document asks how to state the Black–Scholes free-boundary problem for an American put. It contrasts two proposed condition sets involving the exercise region, continuation region, terminal payoff, behavior at large stock prices, and value and delta…
The document examines a claim that at-the-money-forward implied volatility in the Heston model is below the square root of expected variance. The response connects variance swap volatility to an expectation over squared values of a transformed, or modified,…
The document addresses finite difference pricing when an exotic option has a discontinuous payoff, such as a binary or barrier, and nearby vanilla strikes are used for hedging. A coarse asset-price grid may fail to represent the payoff boundary accurately…