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.
1,414 documents
The document describes an asymmetry in commodity futures pricing for storable goods. If a future contract is priced far above spot, an arbitrageur can buy the commodity now, pay financing, storage, and insurance costs, and arrange delivery against the…
The exchange offers a starting point for learning how factor strategies are discussed in commodities. It recommends a commodity benchmarking article and suggests studying value and momentum, with a cross-asset factor paper as a reference. It also names carry…
The document considers whether short gamma, commonly associated with selling options, is inherently a losing strategy. Its response distinguishes cash-secured put writing from leveraged, uncovered option selling: collateral can limit losses to the invested…
The document explains why different metals can have different futures curve shapes, using copper in backwardation and aluminum in contango as examples. It starts from a cost-of-carry relationship involving financing, storage costs, and convenience yield,…
The document explains why a put option on an underlying that cannot fall below zero cannot be worth more than its strike. At the lowest possible underlying value, the put payoff reaches the strike; because the option’s value is based on possible discounted…
The document asks where to obtain monthly historical data for WTI, gold, and the CRB index. The answer names free data sources and commercial vendors, but emphasizes that a request for a commodity price needs a more precise definition before choosing a…
The document asks what rate to use when discounting a future payment made directly in gold. One answer derives an asset-denominated discount factor from the ratio of the asset’s forward price to its spot price, with the quotation currency canceling out. This…
The document explains why a derivative with a continuously paid running cost cannot be priced by treating its discounted ex-cost value as a martingale. The expected value includes both the discounted terminal payoff and the discounted stream of costs, so the…
The document distinguishes between an ETF’s actual exposure and a proposed hedge based on oil prices. If an ETF tracks shares of a US oil company, its direct exposure is to those shares; an issuer would generally hold the underlying stock, with a possible…
The document discusses why gold funds such as GLD, IAU, and PHYS can show different short-term returns even when they are all linked to gold. The response emphasizes that market prices can diverge from underlying value when financial or physical constraints…
The document describes an attempt to infer a risk-free rate and volatility from traded American gold options expiring in November 2020. It uses a snapshot of call and put prices across strikes, a futures price, and a chosen settlement date as inputs to a…
The document gives a way to compare the steepness of futures curves across contracts with different times to expiry. It proposes taking the logarithm of the ratio between the later-dated futures price and the earlier-dated futures price, dividing by the time…
The document raises a return-definition problem for electricity prices, which may fall below zero. Log returns based on the ratio of consecutive prices are then undefined in some observations. The questioner has used price differences as a substitute and…
The document considers whether a company hedging commodity costs with a long forward should base its decision only on a forecast of the spot price at maturity. The answer emphasizes that corporate hedging should follow a written policy approved by…
The document describes a pricing and risk question for spread options on commodity futures under a Bachelier model. The author converts lognormal volatilities to normal volatilities, estimates basket volatility through moment matching, and prices a European…
The document collects advice for building a risk-return model for a single physical commodity trade, prompted by a petrochemicals analyst seeking ways to include political risk and risk appetite. One response describes an econometric approach to political…
The document answers whether a 30-day commodity moving average should include weekends by interpreting the period as a count of days with price observations. Under that convention, the average is calculated over trading days rather than calendar days,…
The document explains negative roll yield for a commodity ETF that uses futures to approximate spot exposure. As a held near-expiry contract approaches maturity, its price converges toward spot. In a contango curve, the next contract costs more than the…
The document considers how a bank might value and hedge swaps or loan terms tied to a counterparty’s ESG rating. The floating cash flows change with an external score: a weaker rating can raise payments, while an improved rating can lower them. One response…
The document considers proposed short- and long-run effects of a US credit rating downgrade on the dollar, crude oil, and oil’s correlation with gold. The response emphasizes that these are hypotheses requiring a causal sequence: the rating action must…
The document asks how to build a five-month continuous gold futures series from individual contracts with different listing and expiry dates, in the context of replicating commodity models. It distinguishes the mechanics of stitching nearby contracts from…
The document explains how to use a volatility surface quoted by delta to price an option on a futures contract. For a given option strike, first find the implied volatility associated with that strike: when the surface is quoted by delta, solve for the…
The discussion asks whether the no-arbitrage framework and the Fundamental Theorem of Asset Pricing can determine prices for underlying assets such as equities, bonds, and commodities, whose payoffs may not have a clearly tradable causal basis. It…
The document asks how to calculate returns for a spread that is long aluminium and short a weighted amount of lead. It compares a change in spread value divided by a contemporaneous sum of leg values with a weighted combination of the two commodities’ price…