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 why options with different strikes and expiries can have different implied volatilities even though volatility models describe the underlying asset. Implied volatility is the Black–Scholes volatility that corresponds to an option’s…
The document raises whether the volatility and correlation statistics for USD/JPY and GBP/USD are enough to calculate the correlation of the derived GBP/JPY cross rate, given that GBP/JPY equals GBP/USD multiplied by USD/JPY. It also asks whether a…
The document explains how to express gold’s price against a basket of currencies to reduce dependence on any single currency’s movements. Its example basket combines fixed amounts of US dollars, euros, and Japanese yen, then converts the basket value into…
The document considers selecting a subset of currency pairs to form a basket subject to correlation, a second property, and a minimum basket size. Rather than enumerate every subset, the answers recommend defining a clear score or treating one target as an…
The discussion explains how cross-currency swaps and local overnight-indexed swap markets can help construct discount curves for cash flows collateralized in another currency. In a two-currency setup, the response describes fitting a foreign-currency curve…
The answer distinguishes standard interest rate swap valuation from non-deliverable swaps, explaining that a library supporting ordinary swaps may not directly handle the latter. It outlines the fixed and floating leg present values for a standard swap,…
The post explains how to interpret bid-volume and ask-volume fields in tick data that reports bid and ask prices together. In the example discussed, the row represents the state of both sides of the market, so its volume fields describe quoted liquidity or…
The document considers whether a trader with long-term GBP/USD exposure should roll into a less liquid deferred futures contract or continue using nearby contracts. Its central distinction is between using futures as a convenient way to hold exposure close…
The document considers whether buying a CADUSD put and selling a USDCAD call could create an arbitrage because their quoted premiums and payoffs appear to leave a net credit. The question highlights that the currencies are inversely related and argues that…
The document explains a sharp historical move in the French franc’s exchange value against the US dollar. It identifies the cause as France’s devaluation of the franc, decided by President Pompidou and Finance Minister Giscard d’Estaing, with the adjustment…
The discussion considers pricing mark-to-market (MtM) basis cross-currency swaps and using their market quotes to derive collateralized discount curves when constant-notional swap data is unavailable. It references a multi-curve framework and an analytical…
The document presents a currency and bond arbitrage exercise involving a sterling bond, a dollar loan, spot conversion, and a forward sale of sterling. The question asks why the loan repayment is written as 1.68 times the borrowed dollar amount when the…
The document addresses how to extend EURUSD history to dates before the euro existed, for quantitative analysis. One suggested proxy is the European Currency Unit (ECU), a pre-euro basket currency. Its constituent weights can be used to construct a…
The document discusses a three-class LSTM model for predicting financial trends from three time series. The question compares reported accuracy in a cited study with a lower result from an initial implementation and asks about model choices. The response…
The document explains calibration in the context of using the SABR stochastic volatility model to price foreign exchange call options. Calibration means choosing model parameters so that model outputs match observed market quotes as closely as possible. The…
The document considers how to value currency options when a central bank caps an exchange rate, using the Swiss National Bank’s franc ceiling against the euro as context. Its answer argues that standard models calibrated to historical market behavior may be…
The discussion evaluates a proposed currency index that would weight exchange-rate changes by each currency’s share of daily trading volume. A central obstacle is that spot foreign exchange is mostly traded over the counter, so comprehensive daily volume is…
The document asks whether a position in three-month sterling LIBOR futures should be hedged with GBP/USD futures by matching the contracts’ full notionals. The reply challenges that approach by distinguishing a contract’s notional amount from the actual…
The document explains how to think about intraday trading in currency forwards by relating a forward quote to the spot exchange rate and the cost of carry. It describes the forward as exposure to the underlying currency pair, adjusted for the interest-rate…
The document derives the fair one-year forward exchange rate by treating the two currencies as investable assets and applying the law of one price. It defines the spot quote as units of domestic currency L needed to buy one unit of currency Z, then compares…
The discussion compares two ways to value the P&L of a foreign exchange forward: tracking the change in the forward rate, and valuing the future currency cash flows with discount factors and converting them at spot. The response says these methods agree when…
The document presents stochastic-calculus exercises involving a Hull–White short-rate process, a default-free zero-coupon bond, and a dollar–yen exchange rate. One task asks for the dynamics of a Japanese investor’s bond value after converting it into yen,…
The document explains how a US investor can hold a euro-denominated German bond while hedging the currency exposure. The investor exchanges dollars for euros at spot, buys the bond, and sells euros forward to lock in the dollar value of the maturity…
The document explains how to estimate volatility from five-minute EUR/USD price observations and distinguish the estimation window from the horizon used to annualize the estimate. Consecutive price ratios minus one give simple five-minute returns; a rolling…