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6

Today (1 day after the fact) the following headline appeared in the Financial Times: "September Fed rate lift-off put in doubt, Fallout from China’s currency move turns market mood". If true, this would certainly explain why the USD declined (i.e. the interest rate rise that everyone expected has been postponed). However, in my experience it is very hard to ...


5

Within the fixed income space, there's a lot of literature on PCA trading. The first 2-3 principal component factors (PCs) can typically explain 90-99% of the total variances in yield curve movement. It's also nice, because the first PC looks like a change in the overall level of the yield curve, the second PC looks like a slope change, while the third ...


3

Most traders have no idea what N(d2) is. I see two possibilities (a) they're using the delta of the option for the relevant strike, as seen by whatever model they're using, or (b) they are pricing a digital put on the yuan, using the full skew structure (as a former trader, that's the way I'd do it).


2

There are a couple of things that I'd like to highlight in your approach to forming a factor-mimicking portfolio: (a) Fama-French (FF) construct a long-short portfolio of stocks, and not just a long portfolio, as you have indicated. Here is the formula from Kenneth French's website HML = 1/2 (Small Value + Big Value) - 1/2 (Small Growth + Big Growth) (b) ...


2

This is a resource you may want to look at. https://personal.vanguard.com/pdf/ISGHC.pdf Additionally, this books seems good for this particular topic: Risk Without Reward: The Case for Strategic FX Hedging. Also, take a look at Advanced Bond Portfolio Management: Best Practices in Modeling and Strategies edited by Frank J. Fabozzi, Lionel Martellini, ...


2

I just checked Google Finance and the EUR/USD = 1.1190.... for arguments sake lets say it goes up by 0.10 to 1.2190 the percentage change = 1.2190/1.1190-1 = +8.94% in terms of USD/EUR the beginning quote would be 1/1.1190 = 0.8937 but would be 1/1.2190 = 0.8203 after the EUR/USD went up by 0.10. Therefore the change in terms of USD/EUR = 0.8203/0.8937-1 = -...


2

It costs 0.03 dollars for the option to (sell 1 pound/buy 1.5 dollars. Now divide everything by 1.5: It costs 0.02 dollars for the option to (sell 2/3 pound / buy 1 dollar). Now convert to pounds at spot rate: It costs 0.0133 pounds for the option to (sell 2/3 pound / buy 1 dollar). Done


2

If you want millisecond updates, you need to use technologies other than json.


1

You wrote "the quotes I have for the swap don't look like rates". FX swaps are quoted in terms of "forward points" which have to be added or subtracted from the spot quotation. Sometimes the sign of the swap points is given explicitly. More often a quoting convention is followed that suppresses the negative signs if any. The quote you have is 112.1/111.1 ...


1

It doesn't make sense to use the (co)variance(s) of asset values; if you did, by cutting an investment's share of the allocation by half, you would also cut its variance by a factor of 4. In a meaningful portfolio design, the volatility (variance) of an asset, by itself, is the same no matter how much or how little of your portfolio you put in it. Why doesn'...


1

It depends on the assumptions you are willing to make. If you either assume: (i) Complete purchasing power parity (relative prices of goods are the same everywhere and an exchange rate is just the ratio of the nominal prices of any good in two countries) or (ii) the assets you consider cannot be used to hedge exchange risk then you are fine by using ...


1

there is nothing to do with implied distribution from option prices calculated with Breeden-Litzenberer approach. this distribution is "risk-neutral" not "real". consider this as a sort of theoretical and artificial, regarding to real disribution, idea. in the article the author wrote about demand for puts. so they/she calculated these probabilities from ...


1

If the base ccy of the your portfolio is CAD, then it makes sense to use the asset weights in base too (= CAD) according to your described formula.


1

Let $\{X_t \mid t \ge 0\}$ be the foreign exchange rate rate from $£$ to $\$$. Moreover, let $C(X_0, K, T)$ and $P(X_0, K, T)$ be the prices of the respective call and put options with strike $K$ and maturity $T$. Then \begin{align*} \frac{1}{X_0}P(X_0,\, K,\, T) = K C\left(\frac{1}{X_0},\, \frac{1}{K},\, T \right). \end{align*} Based on the given condition, ...


1

A call lets to purchase one unit of underlying for some strike price x. So a call on GBP in USD lets us buy 1 unit of GBP for price x. However, since this is FX, lets clarify this to be USD x and USD 1 gets us GBP 1/x. A put lets you sell one unit of underlying for some strike price y (= 1/x). So a put on USD in GBP lets us sell 1 unit of USD for price 1/x. ...


1

I assume you're doing interest rate parity or currency carry research. The proper interest rates to use in this context are the local deposit rates, preferably OIS (overnight indexed swap) rates. These are readily available for all major currencies nowadays.


1

I am not sure what the purpose of your volatility calculation is. So, frankly, the question does not make 100% sense to me. However, countries do not engage in trade with just one other country but with many, so from an International Trade Theory point of view looking at a single bi-lateral rate (even an important one like SLOVAKIA/EUR) is not enough. ...


1

The volatility goes to 0 once the crown is pegged to the Euro. The value of an exchange rate between Currency1 and Currency2 the the ratio of the value of Currency1/Currency2. The realized volatility of a currency pair is the usually measured as some trailing average of the daily log-changes in this ratio. After the conversion was made the crown at a ...



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