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.
610 documents
The document explains why a futures backtest needs to model the transition from an expiring contract to a later-dated contract. A price difference between those contracts is not itself a trading gain or loss: a live trader closes the expiring position and…
The document explains why a futures quote usually does not predict where the underlying asset’s spot price will be at expiration. For storable commodities and financial products, arbitrage links futures and spot prices: financing, storage, insurance, and…
The document analyzes the carry of a long bond, short futures position used to hedge interest rate exposure. It frames carry as coupon income minus financing cost. When the bond yield is below the short-term rate used to fund it, the financing expense…
The document asks how covered interest rate parity should be applied when spot foreign-exchange trades settle after a delay. Its starting point compares investing domestic currency at the domestic rate and converting at a forward rate with converting into…
This note asks about buying an off-the-run Treasury bond that is deliverable into a bond futures contract but is not currently the cheapest to deliver, while shorting the futures. The proposed relative-value rationale is that the cash bond may richen against…
The document compares two ways to express a foreign exchange carry trade. In the funded version, an investor borrows in a lower-rate currency and invests in a higher-rate currency; the resulting return reflects both the exchange-rate move and the difference…
The response challenges the idea that a total return swap without a formal early-termination clause should be valued by projecting its cash flows to maturity. It separates the swap into an underlying instrument leg and a financing leg. For a dealer holding…
The document asks how to compare a forecast of three-month carry and rolldown on a five-year interest rate swap with the swap’s realized return. It cites a decomposition into the return from changes in market value, the effect of the curve point rolling to a…
The document describes a proposed forward-starting swap steepener: receive fixed on a five-year swap and pay fixed on a thirty-year swap, with both starting at a future date. It frames carry as the benefit that may arise if the spot five-to-thirty-year curve…
The document asks how a bond carry approximation based on the difference between yield to maturity and the repo rate is derived. It considers whether yield to maturity can stand in for running yield, defined as coupon income relative to price, and suggests…
The document asks how to decompose the one-day mark-to-market PnL of a position receiving a forward six-month interest rate into changes in rates and carry. It gives initial and next-day quotes for a six-month rate and a six-month rate starting six months…
The document explains a way for a domestic investor to hold a foreign currency security without taking direct foreign exchange exposure. It compares three economically equivalent approaches: combine spot and forward FX transactions around the security…
The document frames a cash-and-carry trade in a contango market: buy the underlying asset and sell a futures contract. It compares a nearer contract with a higher annualized yield against a later contract that may offer a larger absolute basis. The trader…
The document explains why the repo rate on a scarce, specific bond can fall when demand to borrow that bond rises. It corrects the intuition that bond buyers are borrowing more cash and therefore should pay a higher rate: in a repo transaction, one party…
To estimate the implied repo rate for a bond that has not yet been issued, the document recommends specifying its coupon and yield. Its issue date and maturity are treated as known; after the coupon and yield assumptions are set, the implied repo can be…
The document explains how to think about a rolling foreign exchange carry trade and why an implied yield is not itself the trade’s return. The forward rate embeds the interest differential under covered interest parity, which links spot, forward, and…
The document distinguishes carry from roll-down for forward-starting interest rate swaps. Before the swap begins, its floating leg has no certain payments over the investor’s holding horizon, so the response describes the position as having no earned carry…
The document explains what it means for forward swap rates to be realized and how that differs from the yield curve simply remaining unchanged. In its example, a pay-fixed swap is entered at the current par rate, and the relevant comparison after one year is…
The document explains why buying a bond and shorting a futures contract can be viewed as a synthetic reverse repo. In a reverse repo, an asset is sold with an agreement to repurchase it later; the price difference represents financing interest, while the…
The note explains how to estimate fair value for a futures contract using the cost-of-carry relationship. For an index future, it relates the spot index level to financing over the contract term, adjusted for income such as dividends. The same idea can be…
The document explains why a futures contract’s implied repo rate may be higher when the short delivers on the last eligible date rather than the first. The key detail is that the invoice price includes accrued interest in addition to the futures price…
The document clarifies three terms used in forward markets. The forward price is the current price for entering a new forward with a given maturity, and it changes as market conditions change. The delivery price is the amount fixed in an existing contract…
The document discusses apparent weekday swings in the P&L of a short eurozone bond position, where settlement occurs after a lag. Its response explains the effect through settlement-date valuation: a short bond may appear to have a larger liability when its…
The document distinguishes futures contracts whose prices are constrained by arbitrage from those whose prices are harder to model. For a storable commodity with an observable spot price and no convenience yield, the cost-of-carry relationship can determine…