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.
10,263 documents
The document asks whether an implied volatility surface can be used to calculate options strategy P&L and variance swap P&L when individual option prices are unavailable. The response says a surface can support these calculations if its construction…
The document describes a Monte Carlo setup for a correlation swap: pairs of normally distributed asset returns are generated with a specified population correlation, and sample correlation is calculated across observation periods for each simulated path. The…
The document examines why a finite-difference bond convexity calculation can differ substantially from a market quote. Its central explanation is that convexity depends on how yield is expressed: using yield in percentage points versus decimal form changes…
The document explains why a call option on a basket of stocks is commonly described as having positive exposure to correlation. A basket’s value depends on the combined returns of its constituents, so its distribution is more complicated than the…
The document asks whether investors can isolate jump risk premia in a way that variance swaps isolate variance risk premia. It describes gap-risk contracts as a practical analogue: an over-the-counter swap or exposure embedded in a structured note, based on…
The document addresses whether an overnight index swap’s fair rate and PV01 can be calculated without constructing an OvernightIndexedSwap object in QuantLib. The response cautions that reproducing the calculation from a curve alone is complex and would be…
The document outlines the historical VIX methodology and distinguishes two changes to the index. In 2003, the underlying shifted from S&P 100 options to S&P 500 options, and the calculation moved from implied volatility to a variance-swap approach. In 2014,…
The document explains why comparing two delivery months of a bond future generally cannot isolate the underlying bond’s price using a simple carry relationship. Futures pricing depends on the cheapest-to-deliver bond, its conversion factor, the repo rate…
The document presents a two-factor pricing setup in which the stock price follows a diffusion with constant volatility and the short rate follows a mean-reverting process. Assuming the two Brownian drivers are uncorrelated, the response gives a generalized…
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 asks whether selecting the least expensive option at successive expiries can reveal an asset's most likely price path. The answers explain that option prices can be used to infer risk-neutral distributions of terminal prices at fixed maturities.…
The document examines whether a call option's delta equals its probability of expiring in the money under the Bachelier model. It first corrects a related misconception: Black–Scholes call delta is not generally the exercise probability. For a forward…
The discussion distinguishes geometric-average and arithmetic-average Asian options under the Heston stochastic volatility model. It reports that a closed-form pricing formula is available for the geometric Asian option, while an analogous closed form is not…
The discussion explains why a five-year interest rate swap can have a rate sensitivity close to that of a par five-year Treasury. In the example, a 15 basis point rate move changes the Treasury’s value by roughly the present value of a 15 basis point…
The document explains why a caplet whose payoff is fixed and paid on the LIBOR fixing date is more involved than one paid at the end of the underlying accrual period. For the latter, the forward rate is modeled as a martingale under the matching maturity…
The document presents a proposed closed-form value for a convertible bond under a two-factor setup involving the stock price and a Vasicek-like interest-rate factor. The cited response expresses the value in a Black-style form, using the stock price, a…
The document surveys ways to obtain exposure to volatility using options. One straightforward approach is to hold an at-the-money straddle and delta hedge it, while recognizing that its volatility sensitivity changes as the underlying moves away from the…
The document describes an R error encountered while attempting to compute implied volatility by solving for the volatility that matches an observed option price. The reported failure occurs when the root-finding interval is constructed, even though the code…
The document asks how to price several option payoffs that depend on the underlying asset at two future dates, with a fixed constant also appearing in maximum and minimum terms. The valuation time precedes both dates. The author wants to know whether the…
The question examines the limit of a put price divided by its strike as the strike approaches zero, under zero interest rates. It rewrites the put payoff expectation as the probability that the terminal stock value is below the strike, minus a scaled…
This discussion describes fitting a SABR volatility surface to options on SOFR futures. The workflow solves for implied Black or Bachelier volatilities at selected out-of-the-money strikes, calibrates SABR with QuantLib, adjusts parameters by hand, then…
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 note explains how to estimate an American put’s early exercise boundary when using Longstaff–Schwartz least squares Monte Carlo (LSM). Its central method is to compare the option value at neighboring underlying-price nodes with the value from exercising…
The document addresses a Bloomberg settings question about valuing interest-rate caps and floors when the model is labeled Black-Scholes-Merton and volatility is set to Normal. The response says those choices are not combined: Bloomberg changes the settings…