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 how to interpret references to foreign-exchange grid changes in stress testing. It gives an example in which day-to-day stress moves in the U.S. dollar are linked to vanilla EUR/USD options positioning: long strike positions expire while…
The document presents an interview prompt about constructing a risk-neutral trade based on the difference between the two-year-to-ten-year interest-rate spreads in Germany and the United States. It asks what “risk neutral” should mean in a trading interview,…
The document discusses the Bloomberg EUR implied three-month forward rate and asks how it is derived and which instruments support the underlying curves. The replies explain that the quote is connected to foreign exchange interest rate parity: the FX forward…
The document explains how electronic communication networks may assess whether a liquidity taker’s FX flow is difficult for liquidity providers to monetize. Its central diagnostic is an aftermath chart: average mark-to-market profit from the provider’s…
The document explains why market curve calibration and trade valuation can use different collateral assumptions. Its example is a EUR/USD cross-currency swap with basis: the collateral currency affects which discount curves apply to each currency’s cash…
Uncovered interest rate parity (UIRP) relates the interest rate differential between two currencies to the expected change in their exchange rate. The answer corrects an incomplete equation by including both the current spot rate and the future expected spot…
The document describes a trade that starts with dollar funding, converts it to yen through a one-year FX forward arrangement, invests in a Japanese government bond, and later uses the bond proceeds to settle the currency exchange. It examines whether the…
The document explains the market phrase “risk proxies” in the context of currencies and other asset classes. It uses the term for assets that tend to be treated as risky: emerging-market currencies are described as vulnerable during economic trouble, while…
The exchange addresses which day-count bases to use when calculating implied interest rates from covered interest rate parity for the Australian dollar and US dollar pair. The accepted response points to a market-conventions reference, and another response…
The document explains why practical FX option pricing requires more than identifying a single current spot rate. It distinguishes the pricing date, premium value date, spot date, option expiry, and delivery date. These dates can differ because of settlement…
The discussion distinguishes physical-measure forecasts from risk-neutral valuation for an exchange rate quoted as domestic currency per unit of foreign currency. Under the domestic money-market numeraire, the Garman–Kohlhagen model gives a risk-neutral…
The note explains why FX option market makers may describe positions in terms of long or short strikes rather than whether the option is a put or a call. With a delta hedge included, put-call parity makes a put position equivalent to a call position, so the…
The note considers whether the profit from a three-currency FX arbitrage depends on which currency starts the conversion cycle. It represents the cycle with exchange rates for EUR/USD, USD/JPY, and JPY/EUR, and identifies an arbitrage when their product…
The document considers how to hedge two opposite currency flows occurring on different future dates. Hedging each flow with a separate forward can secure both exchange rates, but leaves the hedger paying for two contracts. Waiting until the first flow occurs…
The document discusses how often financial institutions recalibrate the SABR model when pricing FX options. Its practical guidance is that calibration is typically performed daily, with additional intraday recalibration sometimes needed on especially…
The discussion evaluates fitting an Ornstein-Uhlenbeck process to daily EUR/USD observations using maximum likelihood. The estimate of mean reversion is close to zero, while the reported stationarity test does not reject a non-stationary series. Since the…
The document raises a currency-convention question about the delta of a USD-denominated USDJPY option when the holder measures value in another currency. It distinguishes the option’s sensitivity to USDJPY spot, expressed as the derivative of its dollar…
The document asks about emerging-market currency bonds priced using cross-currency swap rates and about the participants and drivers of fixed-local-currency versus floating-dollar swaps. The response describes these swaps as longer-dated expressions of…
The document clarifies that reference rates used for swap floating legs and rates used to discount cash flows are distinct choices. It notes that EURIBOR remained in use, while EONIA was replaced by €STR, and that USD markets used both Federal Funds and SOFR…
The document explains how to interpret an FX forward quote and calculate the implied funding yield and FX basis. Under covered interest rate parity, the forward exchange rate relates spot, the two currency interest rates, and the accrual period. Rearranging…
The document considers how to price and hedge an option on EUR/CAD when EUR/USD and USD/CAD markets are available. It constructs the cross rate by multiplying the two quoted rates, with the quote convention needing careful attention. It then treats that…
This answer outlines two broad influences on exchange rates: current account balances and differences in interest rates and inflation. A current account deficit can imply structural currency supply and depreciation pressure, while a surplus can imply…
The answer explains that a 1:2 risk–reward ratio is a convention rather than a universally correct rule. It offers two possible reasons traders favor it: loss aversion may lead investors to seek more potential gain than potential loss, and a reward-to-risk…
The document considers how to convert tick-by-tick prices for an asset quoted in euros into U.S. dollars when the available EUR/USD observations are only minute-by-minute. Its proposed method is to linearly interpolate the exchange rate between adjacent…