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 note explains the notation used for CME 10-year Treasury note option strikes. A quoted strike of 1300 represents 130.0 in futures-price terms, while 1305 represents 130.5; the decimal is implicit. It also states that the minimum strike increment is 0.5.…
The document considers whether principal component analysis of US Treasury rates should use cash yields or Treasury futures. It recommends constant-maturity par yields, which keep the maturity of each series stable as bonds and futures delivery baskets…
The document presents a binomial pricing exercise for an American call option whose underlying is a futures contract. The stock tree is calibrated to a Black–Scholes geometric Brownian motion setup, while the option expires before the futures contract…
The document compares the cost of obtaining leveraged exposure through a leveraged ETF with borrowing to buy a standard ETF. It raises financing rates and fund expenses as relevant costs, then highlights a distinct issue: daily leveraged products can lose…
The document explains how to value an existing forward before maturity and how that value relates to a transfer between counterparties. Under zero dividends and a constant interest rate, it derives the forward’s value as the spot price less the discounted…
This note explains why conversion factors affect hedge ratios during the trading life of a deliverable Treasury futures contract but do not change the physical delivery quantity. Because the futures price does not move one-for-one with a particular bond, the…
The document explains how to estimate an index-futures hedge for a portfolio of stocks under the Capital Asset Pricing Model. For each holding, multiply its market value by its beta to the chosen index, then add those amounts. The resulting exposure…
The document addresses whether CME options on one-month SOFR futures continue trading during the month when the underlying SOFR rate is measured. This matters for implied volatility modeling: if trading overlaps the averaging period, remaining uncertainty…
The note identifies CME 30-day Federal Funds futures as a market instrument for interpreting expectations about Federal Reserve rate decisions. It responds to a question about a reported shift in expected hike timing after China devalued the yuan, pointing…
The note explains the convexity adjustment between forward rate agreements and interest-rate futures. It rejects the common explanation that daily futures margining alone creates the difference: collateralized FRA cash flows have a comparable reinvestment…
The document asks whether a forward price under the risk-neutral measure follows the same drift as a spot price, and examines pricing a payoff tied to a forward maturing after the payoff date. It sets out a geometric Brownian motion model for spot and…
The document discusses hedging exposure to oil prices with forward contracts and asks whether one contract per asset is automatically the right hedge. The responses emphasize that the appropriate ratio depends on the objective and on how well the forward…
The document asks how to obtain a conditional variance-covariance matrix from an estimated MGARCH-BEKK model fitted to spot and futures price series. It presents a two-asset BEKK-style recursion built from a constant matrix, lagged return residuals, and the…
The document explains why a bond futures contract may permit delivery of several eligible bonds instead of naming one specific issue. If a particular bond becomes scarce or unusually expensive relative to comparable bonds, restricting delivery to that issue…
The document asks whether probabilities inferred from derivatives on non-traded variables, such as weather outcomes or central bank rate decisions, represent risk-neutral or real-world beliefs. The responses distinguish pricing measures from objective…
The document asks why a one-year Bitcoin futures contract can trade at a premium whose annualized rate exceeds a comparable government bond yield, despite standard cost-of-carry relationships. It considers whether demand for leveraged exposure may help…
The document addresses pricing European options on the ASX 200 index when dividends paid by constituent companies affect the index level. It reports that using a continuous dividend yield in Black–Scholes–Merton produced a price consistent with the observed…
The document explains how to interpret a forward-price stochastic differential equation containing both Brownian motion and Poisson jumps. It treats the counting-process increment as zero between event times and one at a jump, which lets the exponential jump…
The post questions why Micro E-mini S&P 500 futures expiring in June 2021 were quoted below the March 2021 contract, despite the author’s expectation that later expiries should cost more to avoid arbitrage. It notes that the S&P 500 is a total return index…
The document compares a dividend swap with a dividend future when both provide exposure to dividends through a stated strike or entry price. In the example, a long position entered at 100 gains when the dividend outcome or futures price rises to 102, but the…
The document uses a delta-hedged option approximation to estimate the underlying price move needed to offset one day of time decay. Setting the approximate gamma gain equal to theta decay gives a break-even move proportional to the square root of twice the…
The document contrasts the end-of-month delivery option in Treasury futures with the switch option before and after futures trading ends. Before expiry, the futures price remains variable and is driven mainly by the converted price of the cheapest-to-deliver…
The document raises a question about why Treasury bond futures conversion factors move in opposite directions across delivery months for bonds with coupons above or below the contract’s 6% standard. It challenges the idea that the factor’s direction should…
The document discusses how to assess liquidity in commodity futures, noting that stock-market measures such as volume and the Amivest ratio may not transfer directly to every contract. Suggested indicators include trading volume, bid–ask spreads, order-book…