My personal
A guide to pricing and hedging (2003) [pdf]
81–90 of 90 posts
Re: A guide to pricing and hedging (2003) [pdf]
#82What's the benefit of these fancy financial instruments other than for someone who wants to enjoy a slower, higher stakes version of the roulette wheel at a casino (assuming the Boglehead wisdom that individual stock picking is about as reliable as that)?
There are people and enterprises with natural exposure to certain risks. They can use derivative positions to take an offsetting risk and zero out (or mostly negate) the risk that they're taking. For instance, someone who leases out farmland will collect rents that correlate with the prices of the main crops in the area. They can short the relevant futures contract and get offsetting profits if a crop price reduction drives down rents.
Re: A guide to pricing and hedging (2003) [pdf]
#83I saw this guy speak at the yale club or something in midtown (NYC) in 2017 on risk modeling. at the time he was arguing that what the industry needed was a return to fundamentals and more intervention from traders ie the algos had run away. I haven't read the article but seeing as how he was one of the first mathematical quants on the street I wonder if this from 2003 is contrary to his opinion from 2017.
Here's his book. I haven't read it but it's probably interesting.
https://www.amazon.com/My-Life-Quant-Reflections-Physics/dp/...
Re: A guide to pricing and hedging (2003) [pdf]
#84I hate to be "that person" ... but what is it in this paper that makes it appropriate to label it "The boy's guide ..." Answer: nothing. Nothing at all. Words matter, role-models matter, names matter, and this is just completely tone-deaf in today's world. Men (and boys) may scoff, but seeing the title is seriously off-putting. Unnecessary, inappropriate, and the problem is that the author probably has no clue. I've…
It is a form of dry pedantic humor. In early 20th century USA, there were a lot of instructional books marketed at children with titles like this... "A Boy's Guide to Fishing", and so on. The author, who wishes finance students to remain focused on the fundamentals rather than getting lost in esoterica, chose a title that harkens back to these plain-spoken primers. I suppose he didn't stop to think that most of his a…
that might be true but don't you realize that those titled themselves are offensive? because the books weren't for children equitably but for boys.
Re: A guide to pricing and hedging (2003) [pdf]
#85What's the benefit of these fancy financial instruments other than for someone who wants to enjoy a slower, higher stakes version of the roulette wheel at a casino (assuming the Boglehead wisdom that individual stock picking is about as reliable as that)?
Hey, this is a good question. I have worked as a professional options trader at a major investment bank, and I would answer this a few different ways. 1) Derivatives allow you to tailor your risk to the precise component of the market that you have a view on. If you think the stock is going to have a large move (either up or down) in the short term, it's tough to express that view in the stock. If you buy stock, you…
I think your example in 4 doesn't work.
I had a similar problem during an IPO lockup and couldn't sell when the stock was at a high point. If you buy protective puts (for the collar), it would reset the long term capital gains clock on your long position. I would love to be wrong so I can regret/cry about it!
Re: A guide to pricing and hedging (2003) [pdf]
#86Earlier quoted context omitted.
I doubt the author would use the title today, but still, if we don't call this kind of stuff out for what it is, it just keeps happening.
vcf, it is what it is ... the interpretations, judgments and your subsequent reactions however are, as you are keen to explain intended to get others to censor value creators (the pdf, not the industry). its probably you that should be happy for free speech more than he.
That is obviously false, nobody tried to censor the creator. People have just pointed out that the title is inappropriate, which it obviously is.
It implicitly conveys the message that women don't belong in Finance. I don't see how anyone could attempt at denying that or try to defend it.
I should be happy for free speech, what does that even mean LOL?
Re: A guide to pricing and hedging (2003) [pdf]
#87Earlier quoted context omitted.
It's about the impact of 1000 little things.
The thousand little things seem to be experienced on your end. That this makes you condemn an author for his choice of headlines - when you've said nothing about the substance of an article - makes it seem like you have no guy-group to hang with. Get one! It'll clear up the perspective the guy's coming from.
In this case, the social message implied in the headline is much more relevant than the content.
What is exactly the perspective that looks at the title of this article and thinks its perfectly OK?
Re: A guide to pricing and hedging (2003) [pdf]
#88What's the benefit of these fancy financial instruments other than for someone who wants to enjoy a slower, higher stakes version of the roulette wheel at a casino (assuming the Boglehead wisdom that individual stock picking is about as reliable as that)?
Hey, this is a good question. I have worked as a professional options trader at a major investment bank, and I would answer this a few different ways. 1) Derivatives allow you to tailor your risk to the precise component of the market that you have a view on. If you think the stock is going to have a large move (either up or down) in the short term, it's tough to express that view in the stock. If you buy stock, you…
To expand on sort of a combination of 1 and 3:
Options make certain things tradable that were not previously tradable. As you already say, given only the spot, you can basically trade delta - will it go up or down. With options, you can trade vol - will it move little or a lot. With a basket of options versus an option on a basket you can trade correlation - will things move together or not. With CDS you can trade credit (separately from interest) - will a firm go bust or not.
And creating these markets allows for more informed opinion on what's going on.
Having said that, I think derivatives are overrated and fulfil few socially useful functions, and those are often fulfilled by the simplest derivatives, not the complex stuff banks like to peddle (because their fees are higher, yet hidden).
Re: A guide to pricing and hedging (2003) [pdf]
#89Earlier quoted context omitted.
Hey, this is a good question. I have worked as a professional options trader at a major investment bank, and I would answer this a few different ways. 1) Derivatives allow you to tailor your risk to the precise component of the market that you have a view on. If you think the stock is going to have a large move (either up or down) in the short term, it's tough to express that view in the stock. If you buy stock, you…
I think your example in 4 doesn't work. I had a similar problem during an IPO lockup and couldn't sell when the stock was at a high point. If you buy protective puts (for the collar), it would reset the long term capital gains clock on your long position. I would love to be wrong so I can regret/cry about it!
Furthermore, in modern IPOs the lockups specify that you are not allowed to hedge.
Re: A guide to pricing and hedging (2003) [pdf]
#90Earlier quoted context omitted.
Hey, this is a good question. I have worked as a professional options trader at a major investment bank, and I would answer this a few different ways. 1) Derivatives allow you to tailor your risk to the precise component of the market that you have a view on. If you think the stock is going to have a large move (either up or down) in the short term, it's tough to express that view in the stock. If you buy stock, you…
I think your example in 4 doesn't work. I had a similar problem during an IPO lockup and couldn't sell when the stock was at a high point. If you buy protective puts (for the collar), it would reset the long term capital gains clock on your long position. I would love to be wrong so I can regret/cry about it!
> If you buy protective puts (for the collar), it would reset the long term capital gains clock on your long position.
Yes, this is true.
However, it doesn't force you to pay taxes at the higher rate, only to wait longer before the lower rate applies. Once you dispose of the put, the clock resets. But if you continue holding the stock for greater than a year, then the only issue is that your dividends may be taxed more.
On a large-cap name, one thing that some people do is to use a well-correlated index or competitor for the hedge.
In your lockup, I'm betting there were some restrictions on hedging anyway, which may have prevented you from buying puts at all.