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Pricing Money: A beginner's guide to money, bonds, futures and swaps

jdawiseman.com

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Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#111

Post by asdff »

jdaw1 wrote: post #85
tech_ken wrote: post #17

This is an excellent resource and a great read, but DAMN do money markets seem stupid as all get out to me. Where is the productive output of all these arbitrage shell games? How is this more than an abysmal waste of time and resources simply to make a small handful of bankers richer?

I’m the author. Thank you for saying it is an excellent read — that was no small amount of work. You ask “Where is the productive output of all these arbitrage shell games?”, which is a very fair question. The purpose of financial markets, sometimes but not always wholly achieved, is to transfer risks to those best able to hold them. E.g., you are not the optimal person to hold the risk that, through no fault of your…

Why have them privately controlled at all? The fed prints the money. The fed could be the bank and insurer as well, and obviate the middle men skimming the pot.

Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#112

Post by dnadler »

bombcar wrote: post #106
User23 wrote: post #93

Earlier quoted context omitted.

It is an interesting reframe to think of insurance as a, roughly, ATM put. Having some experience with both trading derivatives and gambling though, I’m fairly confident saying that it’s a distinction without a difference. In both cases a little guy with an understanding of risk and bankroll management and some aptitude for the game, which for trading is a Keynesian beauty pageant, can scrape up a few bucks. But most…

The derivatives market is like if they let you buy insurance on anyone without ah insurable risk. So I could decide that I think your house is likely to burn down, so I buy insurance on it. That's what enables the gambling. If the only people who could buy puts or calls were people who had insurable risks in the underlying; it would be a lot smaller market and less gambling.

Good point. The flip side is that allowing anyone to transact in options makes the pricing far more efficient.

Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#113

Post by anon291 »

asdff wrote: post #111
jdaw1 wrote: post #85

Earlier quoted context omitted.

I’m the author. Thank you for saying it is an excellent read — that was no small amount of work. You ask “Where is the productive output of all these arbitrage shell games?”, which is a very fair question. The purpose of financial markets, sometimes but not always wholly achieved, is to transfer risks to those best able to hold them. E.g., you are not the optimal person to hold the risk that, through no fault of your…

Why have them privately controlled at all? The fed prints the money. The fed could be the bank and insurer as well, and obviate the middle men skimming the pot.

I think the question should be 'why not'? The default should be the government doesn't do things and only does things that it is uniquely able to do.

Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#114

Post by anon291 »

dataflow wrote: post #59
lolpython wrote: post #24

Earlier quoted context omitted.

Farmers use futures contracts to protect against price risks [0]. As do energy suppliers [1]. [0] https://www.ers.usda.gov/webdocs/publications/99518/eib-219.... [1] https://emp.lbl.gov/publications/primer-electricity-futures-...

I get why farmers do it but what's the societal benefit of letting a rando like me buy and sell (i.e. make bets on) such contracts? Do farmers really prefer that random people do this?

Many 'randos' like you have lots of money and would happily buy the contract in the hope that they win out, and would be not bummed out completely if they lose, unlike the farmer, for whom such events could be existential.

Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#115

Post by asdff »

anon291 wrote: post #113
asdff wrote: post #111

Earlier quoted context omitted.

Why have them privately controlled at all? The fed prints the money. The fed could be the bank and insurer as well, and obviate the middle men skimming the pot.

I think the question should be 'why not'? The default should be the government doesn't do things and only does things that it is uniquely able to do.

I think that just invites parasitic loss into the system through profit seeking, but maybe this is in fact by design, and us laborers are merely a means to another's greatly yielding end.

Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#116

Post by jeron »

jdaw1 wrote: post #85
tech_ken wrote: post #17

This is an excellent resource and a great read, but DAMN do money markets seem stupid as all get out to me. Where is the productive output of all these arbitrage shell games? How is this more than an abysmal waste of time and resources simply to make a small handful of bankers richer?

I’m the author. Thank you for saying it is an excellent read — that was no small amount of work. You ask “Where is the productive output of all these arbitrage shell games?”, which is a very fair question. The purpose of financial markets, sometimes but not always wholly achieved, is to transfer risks to those best able to hold them. E.g., you are not the optimal person to hold the risk that, through no fault of your…

I like how this guy has written two books on completely different subjects - Money and Wine

Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#117

Post by Matl »

anon291 wrote: post #113
asdff wrote: post #111

Earlier quoted context omitted.

Why have them privately controlled at all? The fed prints the money. The fed could be the bank and insurer as well, and obviate the middle men skimming the pot.

I think the question should be 'why not'? The default should be the government doesn't do things and only does things that it is uniquely able to do.

> The default should be the government doesn't do things

Right, but taking this in the opposite direction then, why for public interest things should the default of 'people who just want to buy the next yacht' run them good?

Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#118

Post by nologic01 »

> some things have changed since it was written; it cannot be your risk manager

this is a fair warning. the book does a better job than the usual pre-crisis interest rate literature discussing credit risk.

a lot of the more advanced treatments were too self-absorbed in their made-up mathematical universe.

Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#120

Post by johngladtj »

criddell wrote: post #48
lordnacho wrote: post #21

Earlier quoted context omitted.

The arbitrage game keeps the prices consistent with each other. It serves to create liquidity so that participants can get their business done without either waiting too long or paying too much.

Maybe this is a dumb question, but who are the participants? What is the business they need to get done? What are they waiting on?

Every single person in the world who has ever traded anything with anyone
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