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11

In January 2020, Matteo Aquilina, Eric Budish, and Peter O’Neill from Britain's Financial Conduct Authority published this study, illustrating how "low latency" market participants can make money off of others. I suggest you read it, because it's very clearly written for the general public, and explains how markets work. I will first oversimplify ...


8

You would definitely have some advantage. High Frequency Trading is all about speed and the fastest traders wins. Oftentimes, winner takes all. The blog Sniper in Mahwah & friends digs into the state of the art of inter-exchange communication. The current state of art for reliable broadband connections are microwave dishes between major trading hubs such ...


5

You are not giving the constructor a discountCurve. The constructor is: ql.ForwardRateAgreement(valueDate, maturityDate, position, strikeForward, notional, iborIndex, discountCurve=ql.YieldTermStructureHandle()) So you should add a the spotCurveHandle as the last parameter: fra = ql.ForwardRateAgreement(ql.Date(7, 5, 2018), ql.Date(15,12,2020), ql.Position....


4

The US Dollar Index is the ratio of the US dollar (USD) to a geometric basket of six major foreign currencies – the Euro (EUR), the Japanese yen (JPY), the pound sterling (GBP), the Canadian dollar (CAD), the Swedish kroner (SEK) and the Swiss franc (CHF). The countries that use these currencies constitute the bulk of international trade with the United ...


4

This question will probably get closed soon, but I'll take a stab at answering anyway. I think, for an undergraduate, an interesting topic would be the FX-credit hybrids, that is, FX options (or even linear products like FX forwards and xccy swaps) with kick-in or kick-out on a credit event. For example - I want (the right) to exchange USD into EUR at some ...


4

1. Theory The Student $t$ distribution does not exhibit a moment generating function $$ M_X(t)=\mathbb{E}\left(e^{tX} \right) $$ Hence, there exist no closed form solution for $M_X(t=1)=\mathbb{E}\left(e^X\right)$, i.e. the expected future spot price. Thus, at least theoretically, we are not able to pinpoint the expectation of the future asset value, thereby ...


3

Assume that you collect only bid price. For some time period, you may find that bid price does not move while ask price does. In other words, if your purpose is collecting market movement, then by collecing just one of bid or ask would not generate data you want. Perhaps mid price would be better, or micro price to include some bidq and askq information. For ...


3

Your calculation 2 is the relevant metric since that is what you actually paid, and later received, both measured in your home currency EUR. If you want to track it in Yahoo Finance, try adding two investments to your portfolio: The 100 USD bought at day 0 at EUR 90 and the US stock you bought at day 0 for EUR 90. With both the USD position and the stock ...


3

Here are my thoughts. Let's take for example the pair EURUSD and USDEUR. The fx rate for EURUSD will be $X_t$ and USDEUR $1/X_t$. Now assume that $d{X_t} = \mu{X_t} dt + \sigma{X_t} dW_t $ then thanks to Ito's Lemma you have $d\bigl(\frac{1}{X_t}\bigr) = 0dt -\frac{1}{X_t^2}dX_t +\frac{1}{2}\frac{-2}{X_t^3}(\sigma X_t)^2 dt = -\frac{1}{X_t^2}dX_t -{X_t}\...


3

You're not really using the same spot, are you? $$ FX_{fwd} = FX_{spot} \frac{1+r}{1+r_f} = FX_{spot} + ForwardPoints$$ But you are using 1.0879 on one side of the equation and then 1.0884 on the other. If you correct for that and for the fact that ibors are quoted in Act/360, you get 0.6586% which is very close to what you wanted. from scipy.optimize ...


3

If you're modelling the FX rate as a geometric brownian motion and asking whether the volatility depends on whether you model the rate or the inverse rate, then the answer is no - and we can demonstrate it using Ito's lemma Assuming the rate $X$ obeys \begin{align} {\frac {dX} X} = rdt + \sigma dW \end{align} for some rate $r$ and volatility $\sigma$, lemma ...


3

Option 1 if your objective is to reduce risk. But do them together as a swap. What you described is a Fx FRA (Forward Rate Agreement, aka Forward Forward, aka Forward starting FX Swap). These are frequently traded. These will be cheaper for you to trade than to trade one leg at a time. You and the dealing counterpart will be taking less risk if you buy ...


3

The way central banks do this is to calculate the Effective Exchange Rate for the country in question. Basically this is a weighted average of the other currencies, with the weights chosen to represent the importance of each foreign country in the international trade of the domestic country. For example for the United States, the Fed has defined the Broad ...


3

Try the BIS Triennial FX Survey, latest was last year. https://www.bis.org/statistics/rpfx19.htm E.g. https://stats.bis.org/statx/srs/table/d11.4?o=8:TO1,9:TO1 (table showing "OTC foreign exchange turnover by instrument, counterparty and maturity in April 2019, "net-net" basis") EDIT: you could also try https://www.bankofengland.co.uk/...


3

I think it's possible. When you say the RFRs are flat, I think we can interpret that as flat for all maturities, including the 1y. So from the 1y Forward rate, we can back out the spot rate via the following relationship between the Spot, Forwards and the RFRs: $$S_{EUR/USD}(1+r_{USD})^n=(1+r_{EUR}+r_{Basis})^nF_{EUR/USD}$$ Above, $r_{Basis}$ stands for the ...


3

Yes. The swap is quoted in fwd points relative to spot (sssuming that what you mean by r_term is the term interest rate of one currency and r_base the term interest rate of the other). Also, best to use market convention for the FX quotes.


3

Example of physical delivery FX forward: In 1 month (maturity date or settlement date), I pay you USD 1 milion and receive from you EUR 1.2 million. You can either specify both notionals in pay and receive currency; or specify one of the notionals, and the strike rate (also called forward rate), in which case you multiply one notional by the strike to get ...


3

This is an excellent philosophical question. Recall that the goal of mark to market is to predict the P&L if we unwound this position in an orderly market. Suppose that you're in a very convinient world, where for every asset you know at all times the bid and offer (ask) prices, at which you can sell or buy these assets. Suppose you're just long some ...


3

So, a future is basically like a forward. $F_0(T) = S_0e^{T(r_{f,T}-r_{d,T}+x_T)}$ The longer dated you go, the more you have exposure to the stuff in the exponential (rates in the two currencies, and the xccy basis $x_T$). That's a trading choice: do you want to trade pure spot FX (or close to it), or the forward (for which maturity?) The answer of ...


2

FOREX is not centralized. Everyone exchanging money is an active FOREX player so, in effect, it works 24h per day but if you look at an 8-17 workday you get the following chart: As you can see, there is an overlap between major financial centres except when switching from NY to Sydney where, in effect, one starts exactly when the other one stops. Major ...


2

A higher than normal spread generally indicates one of two things, high volatility in the market or low liquidity due to out-of-hours trading. Before news events, or during big shock (Brexit, US Elections), spreads can widen greatly. A low spread means there is a small difference between the bid and the ask price. So GMT 22:00 is the NY closing time ...


2

Fx volatility quote conventions are typically esoteric and befuddling. For example, EUR/USD 1m ATM would be the volatility at the strike of a zero spot delta (without premium) straddle. The quote is in percentage, as is typical for vol so read that as 0.315% / 0.319% annualized volatility.


2

A good reference book for FX conventions can be found from the book Foreign Exchange Option Pricing by Iain Clark. The 25% delta risk-reversal quote $\sigma_{25-RR}$ satisfies the system of equations \begin{align*} \begin{cases} \Delta_{call}(k_{25-call}, \sigma_{25-call}) &\!\!\!= 0.25\\ \Delta_{put}(k_{25-put}, \sigma_{25-put}) &\!\!\!= -0.25\\ \...


2

Let $S_t$ be the exchange rate from one unit foreign currency FGN to units of domestic currency DOM. Note that, for maturity $T$ and strike $K$, \begin{align*} \max(S_T-K, \, 0) = S_TK\max\Big(\frac{1}{K}-\frac{1}{S_T}, \, 0\Big). \end{align*} Moreover, let $B^d_t$ and $B^f_t$ be the respective domestic and foreign money-market account values at time $t$, ...


2

Yes, clearly when 2 countries have widely different inflation rates and interest rates we do observe a deterioration of the exchange rate between them over the long term (in the real world, not risk neutral world). For ex. CHF vs USD for last 50 years. In Economics there is a hypothesis called the Uncovered Interest Parity which claims this is generally true ...


2

You are a bit late to the game. High frequency trading has been around for a number of years already. It has reached the state where the computers doing the trading needs to be placed more or less in the same data centers as the stock exchanges -- the speed of light means that further aways means that you miss the profit to other computers. The connection ...


2

It depends, on what you mean by returns. For simple returns: no, for log returns yes. To recap, simple returns are given by $$R_\textrm{simple} = \frac{P_{t+1}}{P_t}-1$$ and log returns are given by $$R_\textrm{log} = \log \left(\frac{P_{t+1}}{P_t}\right).$$ The rate of change is given by $$R = \frac{P_{t+1}}{P_t}.$$ A percentage increase in one currency of ...


2

Your scepticism is well-placed, even if there might be some information value in technical signals! Believing they represent an El-Dorado in the absence of understanding, let alone hard work and inevitable losses along the way, will always be the greater sin, irrespective of any potential value (or not) in the technicals!!! So the "logic" behind ...


2

Firstly, it's highly likely you would be trading either futures or forwards so your only concern is funding your margin at your FCM/PB (e.g. see CME) Why you would convert USD to EUR, I dk. Secondly, you should be calculating your PNL at EOD back to your 'base' currency (which seems to be USD from your post). Related to the above, it's common simply to hold ...


2

Aligning your bond's cashflows with the CCS cashflows timing-wise, you would look to pay fixed USD 7% on one leg and on the other leg either (a) receive fixed EUR (fix-fix CCS), or (b) receive float EUR, like EURIBOR or ESTR plus a spread (fix-float CCS). NB: this is a bit simplifying and you should of course also think of the bond notional redemption at ...


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