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 formulates an exchange-rate model in which the spot rate follows geometric Brownian motion and the domestic and foreign short rates each follow a Vasicek mean-reverting process. Under the domestic risk-neutral measure, the spot drift is the…
The discussion explains how a USD/JPY cross-currency basis swap’s par spread responds when the USD OIS curve moves. The result depends on which curves are held fixed and how the basis curve is treated. If USD OIS, USD and JPY projection curves, and the…
The document asks why exotic options are especially common in foreign exchange markets compared with equities, bonds, and other assets. The responses offer several possible explanations rather than a single demonstrated cause. FX derivatives often hedge real…
The document considers how to express a long Mexican peso versus Japanese yen position using separate currency futures. It compares the dollar-equivalent notionals of two yen contracts and one peso contract, then asks whether the proposed direction is to…
The document explains why Monte Carlo estimates of a European option price can become less precise as volatility rises. The central point is that the estimate averages simulated payoffs, and its sampling error depends on payoff variance and the number of…
The document outlines a basis-based method for adapting local-currency swap valuations to discounting on a USD OIS curve. It combines three market relationships: the local currency’s 3-month-versus-OIS basis, the local/USD cross-currency basis, and the USD…
The document outlines a proposed automated foreign-exchange strategy built around cointegration and forecasting a spread. Its listed workflow transforms price data into log returns, treats outliers, performs linear regression, tests for cointegration with an…
The document explores using the Ledoit–Wolf estimator to reduce sampling error in a covariance matrix used for a market-neutral portfolio. It describes shrinkage as blending the sample covariance matrix with a structured target, with an intensity that…
The document explains how correlation between asset returns and volatility innovations affects the relationship between Black–Scholes volatility and a stochastic-volatility model such as Heston. Negative correlation is reported as typical for equity indices…
The document explains how to derive an implied volatility surface for a currency pair from surfaces quoted for two related pairs. Its example combines EURUSD and USDJPY data to price EURJPY options. It first expresses the target option payoff in terms of the…
The document poses a derivation problem in currency derivatives. It defines stochastic dynamics for a foreign-market stock and the domestic/foreign exchange rate, alongside a deterministic domestic money account. The proposed approach converts the foreign…
In real effective exchange rate and purchasing power parity analysis, an “anchor” is a slow-moving reference estimate for a currency’s long-run value. A model may start with a historical PPP level, such as a long-term average, then adjust it for expected…
The document compares a two-state hidden Markov model applied to currency-return volatility with a simple threshold that labels observations as high or low volatility. A threshold can produce a similar-looking state sequence, but it does not account for the…
The discussion asks how to model the probability that passive quotes placed inside the spread will execute on foreign-exchange electronic communication networks. It supplies no reliable long-run fill-rate estimates. Instead, the responses identify factors…
The discussion examines whether Strata’s use of currency-aware amounts and market-data lookups creates meaningful overhead in FX forward pricing. It explains that CurrencyAmount carries references to immutable Currency and String objects rather than copying…
The document derives the pricing relationship for a EUR-denominated option whose payoff is converted into COP. It applies the change-of-numéraire formula to the COP and EUR money-market accounts, accounting for the exchange rate that converts one EUR into…
The document describes a US company that bills a German client in euros while funding payroll in Egyptian pounds. Its cash flows span USD, EUR, and EGP: funds are converted for payroll in Cairo, client invoices are paid in euros on net terms, and the bank…
The document raises a question about very negative AUDJPY market strangle volatility quotes at long maturities. It gives examples for 25-delta and 10-delta strangles, alongside an at-the-money-forward volatility level, and asks whether the resulting concave…
This question considers Monte Carlo valuation of a payoff based on the positive part of the difference between domestic and foreign forward rates. It assumes a domestic zero-coupon bond maturing at the later tenor date is used as numeraire, and describes the…
The document discusses how to estimate risk inputs for an option on the difference between two futures. It presents three approaches to spread volatility: calculate it from historical spread returns, combine the futures’ implied volatilities with a…
The document asks whether a country's cash reserve ratio affects its currency's value. It does not give a direct model or establish a specific relationship. Instead, the answer points readers toward research on foreign-exchange reserves used to defend…
The document compares two ways to estimate the distribution of an hour of USDJPY one-minute returns: repeatedly convolving an empirical histogram and Monte Carlo sampling sums of 60 observed moves. The simulated sums produce a wider distribution, while the…
The document explains how to model a USD-denominated convertible bond whose conversion feature delivers shares priced in euros. If conversion delivers a fixed number of shares and all relevant thresholds are USD-based, the conversion value is a composite USD…
The document compares deliverable FX forwards, which exchange both currency notionals at maturity, with non-deliverable forwards (NDFs), which settle a net amount in a deliverable currency. It explains that an NDF typically observes an official exchange rate…