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 explains why daily settlement does not erase the hedging purpose of a futures contract. A business can lock in a price for a future purchase or sale, while daily mark-to-market transfers gains and losses as prices change. For a buyer facing…
The document describes a European call whose exercise condition depends only on one commodity futures contract, while exercise also grants the holder a second futures contract. The payoff is the usual positive excess of the first asset over the strike, plus…
The document considers how weekends should affect historical volatility estimates used in Black–Scholes pricing when option market prices are unavailable. It describes a distinction between calendar time used for discounting and effective volatility time…
The document raises a question about soybean and soybean meal futures, which the author describes as highly correlated because they share an underlying agricultural market. A linear regression between the two series produces residuals that fail an Augmented…
The document examines an apparent July quote for Dallas heating degree day futures, a contract that seems inconsistent with the location’s usual summer weather. Its response questions whether the quoted instrument was actually trading and suggests the figure…
The document compares ways to join futures contracts into a continuous price history, focusing on use in return based calculations such as volatility estimation. Its accepted answer recommends ratio adjustment: on a roll date, scale earlier prices by the…
The document discusses whether options can reproduce an index that tracks one asset’s performance relative to another, such as a stock against a broad market benchmark. It distinguishes the index exposure from an option on that index: a long position in the…
The discussion asks whether forward prices should be bootstrapped into estimated spot prices before calculating correlation between two commodities. One response recommends using returns from liquid futures contracts as a practical proxy: calculate daily…
The document asks whether commodity price shocks tend to be larger when the price level is higher, using oil prices as an illustration. It notes that the question concerns dependence between a series’ variance and its mean, and that price regimes or change…
The document asks whether bid-ask spreads for power prices can be studied without order book data by simulating price series with preset volatility from an Ornstein–Uhlenbeck process and varying the spread. The response cautions that spread effects and…
The document concerns the derivation of a minimum-variance hedge for a portfolio involving two underlying assets, in the setting of a load-serving deal. The author is trying to reproduce an equation from a cited energy risk paper and asks whether taking…
This discussion concerns estimating parameters for an Ornstein–Uhlenbeck electricity price model with jumps. The questioner has implemented linear regression and maximum likelihood methods described in a paper on swing options and electricity derivatives,…
The document considers clustering methods such as k-means and k-medoids in quantitative finance. Its concrete proposed use is to identify market regimes in which relationships between assets may differ. For example, a strategy based on gold hedging equity…
The document explains why an ETF that maintains exposure by rolling futures can have a forward value close to its current net asset value, despite differences between spot and futures prices. Because the fund sells expiring contracts and reinvests the…
The document raises a risk-measurement question for quanto-style options on commodity forwards whose payoff is converted through foreign exchange. It gives a composite-volatility formula that combines the underlying commodity volatility, FX volatility, and…
The document compares physical gold forwards with XAU/USD forwards, focusing on how they settle and who might use them. It describes physical forwards as suited to commercial users, such as jewelry businesses managing input costs, while XAU/USD is presented…
The document considers how a futures market can be in contango while also exhibiting normal backwardation. The key clarification is that the terms refer to different comparisons: contango describes the relationship between futures and spot prices observed…
The document addresses updating a volatility curve for front-month vanilla commodity options when some strikes lose their two-way markets. With liquid quotes across strikes, a smoothing spline can provide a usable fit; when observations disappear, the…
This explanation derives the dollar value of a live cattle futures price movement from the contract size and the unit used to quote prices. One contract represents 40,000 pounds, and the quoted price is in cents per pound. A one-cent-per-pound change…
The document explains how physical delivery and limited storage capacity can contribute to negative prices in a crude oil futures contract. It contrasts WTI futures, which are physically delivered at Cushing, with Brent futures, which are described here as…
The document explains why futures expiry dates cannot be inferred from a single monthly rule such as the third Friday. Contract dates vary by exchange and by product, so traders should consult the relevant contract specifications and exchange calendars.…
The document presents a question about a derivation used in Bjerksund and Stensland’s treatment of spread options. Two correlated lognormal futures are expressed using standard normal shocks, and the target expectation includes the first asset multiplied by…
The document asks how to select volatility for a long-dated option on an hourly electricity swap valued with shaped monthly futures and a generation schedule. The proposed setup uses the resulting volume-weighted average price as the futures input to…
The document considers why a company might hedge commodity-driven cash flows itself instead of leaving shareholders to manage that exposure through their personal portfolios. Examples include a corn producer facing falling crop prices and a battery maker…