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 describes how a cross-currency swap can be used to estimate an FX forward rate and express it as forward points relative to spot. One approach first converts the floating currency leg to a fixed rate using the corresponding single-currency swap…
The document explains how forward premium enters currency option pricing and clarifies the role of overnight indexed swaps. In the Garman–Kohlhagen formulation, the domestic-minus-foreign interest rate differential determines the forward exchange rate…
The document discusses how risks not included in a VaR model, such as tenor basis, cross-currency basis, and OIS-Libor spreads, are treated alongside a historical simulation VaR. The question asks whether these risks may be combined with the base VaR using…
The discussion addresses measuring latency between a trading server and liquidity providers when their FIX SendingTime values differ from the local clock by around tens of milliseconds, despite the local server using SNTP. The central caution is that a…
The exchange concerns pricing an EUR/GBP option when EURIBOR is negative and asks whether converting quoted rates to continuously compounded rates requires taking a logarithm. The answer clarifies that the relevant transformation is the logarithm of one plus…
The document distinguishes Brazilian domestic debt indexed to the dollar from debt that provides investors with actual USD. For the historical NTN series D, it describes a USD notional with a fixed coupon: investors paid BRL at the spot exchange rate, and…
The document asks whether hourly or multi-hour realized variance can be used in a realized variance GARCH model. The author has minute-bar foreign exchange data and notes that the usual setup pairs daily returns with a daily realized volatility measure. With…
The document explains how a currency investor can receive the higher interest rate associated with a foreign currency. After exchanging domestic funds for foreign currency, an investor may hold the balance in a local bank account that pays interest, subject…
The document derives the foreign-exchange forward pricing relationship using the cost-of-carry framework. It treats the domestic interest rate as the opportunity cost of holding the currency and the foreign interest rate as the benefit earned by investing in…
The document examines a currency-hedged excess-return formula attributed to Black and Litterman, focusing on why the hedge adjustment includes a factor of one plus the domestic short rate. The responses derive the hedge payoff by combining the foreign…
The document explains how a foreign bank can send dollars to a US bank without physically shipping cash. The foreign bank must have access to dollars, for example through an account at an intermediary bank, and instruct that institution to transfer funds…
The document considers how to limit the risk of a short GBP/JPY position after the exchange rate rises. The question proposes taking a long position through a binary option as a hedge, apparently in response to the adverse move. The answer redirects the…
The document explains how to invert a two-way FX forward quote when changing the currency pair’s direction. Its example asks whether the reciprocal of the EURUSD bid and offer gives the corresponding USDEUR market. The answer confirms inversion, with the…
The document asks why a GBP bond’s spread over gilts differs from the spread implied when converting its funding into USD through a cross-currency swap. It gives an example involving a seven-year bullet bond, a Bloomberg-derived USD equivalent, and the…
The response derives a pricing relationship between a call option on an exchange rate and a put option on the inverse exchange rate. It defines the rate as domestic currency per unit of foreign currency, then rewrites the call payoff using the reciprocal…
The document discusses simulating the value and risk of a portfolio holding FX forwards across currencies and maturities. It distinguishes risk measurement from pricing: one answer says vanilla forwards can be valued directly, while Monte Carlo may be…
The note considers how to forecast currency exchange-rate volatility and compares broad approaches, including simple purchasing-power-parity ideas, factor models, univariate GARCH, and multivariate dynamic conditional correlation models. The author is…
The document clarifies how FX spot delta relates to option delta and settlement timing, using GBP/USD and USD/CHF examples. Its answer explains that spot itself has delta one by definition: its value changes one-for-one with the spot rate. FX option delta…
The document asks whether an index’s Euro-denominated log returns can be converted to USD-denominated log returns by adding the log returns of a USD/EUR exchange rate. It identifies the key operation to examine: combining the asset’s price change with the…
The discussion distinguishes modeling returns under the real-world probability measure for risk analysis or portfolio construction from modeling under the risk-neutral measure for derivatives pricing. For observed log returns, estimate the mean and variance…
The document compares Heston stochastic volatility with Vanna–Volga (VV), an interpolation approach used to construct an FX implied volatility smile. It describes VV as requiring a small set of market volatility quotes, commonly at-the-money and 25-delta…
The note concerns constructing an FX volatility surface when market quotes are expressed by moneyness or delta rather than by fixed absolute strikes. It describes limitations encountered with Python bindings for QuantLib and an Open Source Risk Engine…
The document explains how to construct EUR/USD from EUR/GBP and GBP/USD spot quotes. With the quoted currency legs aligned as EUR per GBP and GBP per USD, multiplying the rates cancels the intermediate GBP exposure and yields EUR per USD. It states that the…
The document explains how to read a quote such as EUR/USD = 1.08. The pair compares the value of one euro with the value of one dollar, while the numerical quote carries units of dollars per euro when used as a conversion factor. This distinction allows…