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 where to obtain historical overnight index swap rates across a range of maturities, motivated by pricing foreign exchange options. It distinguishes a single overnight benchmark such as the Effective Federal Funds Rate from a full OIS curve,…
The document explains why an FX option’s delta convention must match the convention used to build a volatility smile or surface. It lists spot and forward delta, each with premium-adjusted and unadjusted forms, and notes that converting between conventions…
The document considers whether linear hedges, such as delta hedges, can meet most clients' needs without other derivatives. It notes that Black–Scholes theory can use a rebalanced linear hedge to replicate a nonlinear option payoff. For linear exposures, or…
The document explains that a central bank defending an exchange-rate level can place a large limit order at its chosen price. It uses the Swiss National Bank’s former EUR/CHF floor as an example: a standing offer to buy euros at the floor would support the…
The document lays out a curve-construction problem: derive discount factors for Australian-dollar cashflows collateralised with US-dollar cash. It lists available Australian OIS, bank-bill swaps, basis swaps between bank-bill tenors and OIS, and…
The document considers fitting a multivariate GARCH model to Russian exchange-rate and stock-index data whose observations fall on different dates because of holidays and market schedules. It presents two broad ways to align the series: aggregate to a…
The document describes how collateral currency affects discounting when the payment currency differs. For a USD cash flow collateralized in EUR, one approach is to use a USD discount curve adjusted by the cross-currency basis. The answer illustrates this by…
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 document explains how foreign exchange volatility surface expiries are dated relative to currency settlement conventions. It distinguishes weekly tenors, which are counted from the current date, from monthly and yearly tenors, which are counted from the…
The document discusses how OTC FX option quotes are organized around standard expiries and delta-based volatility quotes, while positions can age into non-standard dates. Responses explain that off-grid pricing depends on the client or dealer context, trade…
The document compares over-the-counter FX forwards with exchange-traded futures, explaining why customers and banks may use the OTC market. Forwards can be tailored to a customer’s currency, amount, and delivery date, while listed futures use standardized…
The document asks how to price a quanto option when both the underlying asset and the exchange rate follow calibrated Heston stochastic-volatility models. It specifically questions how to use a constant-volatility quanto formula when volatility varies over…
The document surveys a broad question about stochastic processes for currency exchange rates and how well they perform. Its main perspective is that exchange-rate research often emphasizes economic fundamentals, such as balance of payments, and that useful…
The document discusses using Empirical Mode Decomposition (EMD) of EUR/USD prices as input to a machine learning model. It addresses a discrepancy between promising test-period results and poor predictions on the latest observation. The proposed explanation…
The document explains why a foreign exchange forward is not generally the conditional expectation of the future spot rate under the domestic risk-neutral measure when interest rates are stochastic. The forward price instead comes from discounting the payoff…
The document asks how to move from evaluating a machine-learning model on historical test data to producing forecasts from newly received broker data. The author describes training several model types on price and fundamental inputs, currently using a random…
This note considers how to model future spot when log returns are assumed to follow a Student-t distribution rather than a Gaussian one. It highlights a key theoretical problem: the Student-t distribution lacks a moment-generating function, so the…
The document answers whether a country-specific market risk premium and inflation rates belong in a currency forward-rate calculation. Under covered interest rate parity, the forward exchange rate is determined by the spot exchange rate and the two…
The document explains why risk-neutral probabilities can be useful even though they are not forecasts of real-world frequencies. It uses a currency example: a terminal probability of a specified euro decline against the dollar can be viewed as an implication…
The document investigates a mismatch between a computed Federal Reserve dollar index value and its published value. The index formula compounds each constituent exchange-rate ratio raised to that currency's weight, then multiplies the resulting product by…
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 presents a dual digital option whose payoff depends on two foreign exchange rates crossing specified thresholds at maturity. Because the payoff requires both conditions to hold, its value is sensitive to the correlation between the rates. The…
The document raises the practical problem of calibrating local-stochastic volatility models when an FX volatility surface has only a few quoted strikes per maturity. It notes that standard FX quotes may be expressed through at-the-money straddles and…
The document discusses how to convert a foreign-currency trading gain or loss into a home currency, using a USD/JPY trade as its example. It reports a loss measured in yen and explains that conversion into dollars uses the rate applicable to selling dollars…