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 explains how to infer an implied USD borrowing rate from EUR/USD spot and overnight forward-point quotes when borrowing dollars through an FX swap. The key correction is to compare the forward exchange rate with the same spot rate used in the…
The document discusses how to include swaps, FX forwards, and other non-equity derivatives in Monte Carlo Value at Risk simulations. It contrasts sensitivity-based approximations with full revaluation under simulated market scenarios. Sensitivity methods…
The document asks whether a currency-conversion identity used in pricing an option with a currency exchange feature holds generally. It describes two valuation routes for a payoff denominated in one currency: convert the payoff at maturity and discount in…
The document considers how to estimate a portfolio’s sensitivity to movements in one yield curve when positions also depend on correlated prices and rates. It suggests starting with assumed volatilities and correlations: shock the target factor, infer…
The document explains why a curve is not defined by the fixed or floating legs of a swap. A curve instead supplies discount factors or forecast rates, and those functions must be distinguished when valuing a cross-currency swap. For a fixed-fixed USD-INR…
The document raises a question about how to express an FX option’s delta when the trading book uses an accounting currency different from either currency in the option. Its example is a one-year at-the-money EUR call and USD put, with option and rate inputs…
The document outlines a factor-based approach to estimating one-day value at risk for a currency portfolio containing forwards. A forward’s value is affected by its exchange rate and the interest rates of both currencies. For a USD/JPY forward, for example,…
This note outlines the factors said to inform the currencies and weights in the International Monetary Fund's Special Drawing Rights basket. The answer describes the SDR primarily as a unit of account for the IMF and related institutions, rather than as a…
The note proposes a set of indicators for monitoring foreign exchange risk at different horizons. For short-term market stress, it recommends tracking implied-volatility indices across equity, bond, and FX markets, alongside funding and credit signals such…
The document compares two ways to value a fixed-for-fixed FX swap under multiple curves. One approach discounts the foreign-currency leg using a curve adjusted for cross-currency basis, then converts its present value at spot. The other converts each foreign…
The document explains why a currency call option payoff can be calculated by subtracting a strike exchange rate from the market exchange rate. In the example, both values are quoted in euros per dollar, so their difference is also an exchange-rate amount,…
The discussion asks how to assess the effect of rising LIBOR on companies with foreign currency debt when available balance-sheet data does not identify the debt’s currency or whether its rate is fixed or floating. The answer explains that those details…
The document clarifies what a forex position represents after a series of buys and sells. For a currency pair, the running signed trade amounts alone can describe net exposure, but the worked answer tracks the balances of both currencies created by each…
The document considers whether a currency’s returns can be regressed on an average return across currencies to estimate beta, and whether that beta has a CAPM interpretation. One reply argues that this benchmark may be unsuitable because exchange-rate…
The document describes an attempt to fit a stochastic volatility model to five-minute volume-weighted average prices for the euro–US dollar market. It outlines parameters for the long-run volatility level, persistence, current latent volatility, and…
The document examines an FX option whose payoff is settled in the currency of the underlying rather than the usual domestic currency. It first sketches a Black–Scholes setup for an exchange rate, then changes the payoff through the currency conversion and…
The document describes a test of exit rules in short-term foreign exchange data using randomly selected entry points. It compares a trailing stop, which closes a position after gains retrace by a preset amount, with a fixed threshold that exits when either a…
The document considers using an FX futures contract to hedge an FX forward, with the question focused on spot-rate exposure while setting aside currency interest-rate sensitivities and cross-currency basis risk. The answer offers a concise market…
The document asks how a USD investor should compare keeping cash in dollars with using a USDJPY FX swap to fund a Japanese bond. It distinguishes the implied yield from the swap from the bond’s yield and asks whether a swap alone could be preferable when its…
The document asks how to estimate the average influence of economic news on currency strength, using a history of calendar releases and currency indexes. It raises principal component analysis (PCA) as a possible approach but does not develop or apply a…
The document raises preprocessing choices for modeling exchange-rate data. It asks whether rates quoted against different currencies should be converted to a common base currency, illustrating how a missing cross rate can be derived from two available rates.…
The document considers when a current forward rate can be viewed as an unbiased indicator of a future spot rate. It cites the pure expectations hypothesis, under which forward rates predict future spot rates, and mentions weaker empirical support,…
The document investigates whether an FX option’s time to expiry in an at-the-money delta-neutral strike calculation includes hours and minutes or counts only whole days. It applies the standard forward-based strike formula to a one-day example, using the…
The document describes a daily-rolled backtest of EURUSD options using one-month and two-month straddles, 25-delta risk reversals, and 25-delta butterflies. Each position is held for one trading day, with the next day's valuation using the full volatility…