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.
4,574 documents
The document asks why an FX 25-delta butterfly is commonly expressed using the average of 25-delta call and put volatilities adjusted by the at-the-money straddle volatility. It also asks what the 25-delta label means in this construction, placing the focus…
The document asks how to build a function that returns implied FX volatility for an arbitrary strike and maturity from quoted market points. The available inputs are 10-delta and 25-delta put and call volatilities, along with zero-delta straddle or…
The document raises a risk-measurement question about calculating DV01 for a USD–KRW cross-currency swap. It describes building a USD discount curve so observable USD interest-rate swaps have zero present value, and a KRW curve so observable cross-currency…
The discussion distinguishes listed options from over-the-counter foreign exchange options. Conventional option chains are associated with listed contracts. Interbank FX options are predominantly over the counter and are usually quoted in implied volatility,…
The question concerns whether a short-horizon foreign exchange forecasting model should use bid prices, ask prices, or a blended series, and how to evaluate trades in a backtest. The response distinguishes measuring market movement from simulating executable…
The document discusses how to construct USD yield curves from publicly available data for valuing interest rate swaps and FX forwards. It distinguishes a discount curve from a LIBOR projection curve: the response recommends bootstrapping an OIS curve for…
The document explains how to construct curves for valuing cross-currency swaps in a multicurve framework. It starts with overnight-indexed swap discount curves and single-currency forward curves, then uses cross-currency swap quotes, spot FX, and the…
The discussion considers how to convert assets denominated in different currencies into an account currency during portfolio backtests. The central tradeoff is computational cost versus fidelity: applying an FX rate to every market tick may be expensive,…
The document considers how to turn over-the-counter FX option quotes, reported at different strikes and maturities, into a usable volatility surface. One proposed workflow starts from standard delta quotes, converts each maturity’s deltas to strikes using…
The document explains why an outright FX forward can have theta even though it has no option-style time value. It frames theta more broadly as the change in a position’s value when time advances while market inputs are held fixed. In an FX forward, this…
The document explains how to estimate EUR/USD forward rates from spot and interest rates using covered interest rate parity (CIP). Rates must match the forward’s maturity: an overnight rate is not a substitute for a one-year rate, and the calculation needs…
The document derives covered interest rate parity by equating the present value of a foreign currency cash flow when converted at today’s spot rate with its value when converted at the forward rate and discounted in the other currency. It then explains why a…
The document explains how to price a forward between two non-accounting currencies when market basis quotes are available against a common accounting currency. It describes discounting each currency leg using that currency’s risk-free curve plus its basis…
The document examines a covered interest parity example involving Australian and US interest rates and a spot exchange rate quoted in US dollars per Australian dollar. The example applies the rate differential over the contract term to derive a forward…
The document asks where to obtain real-time foreign exchange data at intervals shorter than one minute, including buy and sell quotes and recent trades. It notes that the questioner’s searches of two data services found a one-minute minimum, then gathers…
The document examines a common first-order approximation for the premium of an FX risk reversal: multiply at-the-money option vega by the risk reversal in volatility points. It explains that the approximation should compare the market-priced call and put…
The document discusses the inputs needed to price an FX option with a Black-Scholes style model when the trader has LIBOR quotes and historical exchange rates. One response suggests using the LIBOR rate nearest the option’s expiry, converting it to a…
The document considers whether ordinary delta replication can hedge a quanto option, whose payoff is domestic-currency-denominated despite exposure to a foreign asset. The answer explains that holding delta in the foreign stock and borrowing in domestic cash…
The document examines whether a volatility surface for an inverse FX quote can be obtained by reversing call and put conventions around the at-the-money level. Its central explanation is that option delta depends on the currency used to measure the hedge. A…
The document explains why daily forex observations cannot be transformed into tick bars or volume bars. Daily prices are aggregates of underlying market activity, so they do not retain the sequence of individual quotes, trades, or trade sizes needed to…
The document explains how to calculate an FX outright forward rate from spot and broker-quoted forward points. The stated calculation is to add the forward points to spot: for the one-month EUR/PLN example, 3.4550 plus 0.0079 gives 3.4629. The question also…
The discussion distinguishes policy rates, interbank rates, and other borrowing rates, then explains how changes in interest rates can relate to currency values. One answer describes the chain from central bank rates to bank and business borrowing costs,…
The document asks whether reliable foreign-exchange prices are available during the weekend, when conventional spot markets are largely closed. The response cautions that quotes visible during quiet hours can be stale, making them poor evidence of current…
The document asks how to derive risk-neutral dynamics for a dividend-paying asset when the bank account is the numeraire. It outlines the martingale condition for the discounted asset plus accumulated discounted dividends, then applies Itô’s formula and…