kotika98

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  • Taleb vs Merton, Cont.
    I had read that paper of Taleb and Derman sometime after it came out in 2005. There is not much there except raving against "dynamic replication", which they claim to be a theoretical construct. They themselves dont do anything new, just rederive the good old Black-Scholes-Merton formula by "actuarial expectation". That is not new, such derivations of the option pricing formula were around already in 1965 or so (i forget the names of the people who came with it, you can look up in the BS paper). The problem with their, and older derivations, is really how to explain that the expected rate of growth of the stock is equal to the risk-free rate. This is not an idle academic question, and can only be decided by the dynamic replication argument.

    The second thing concerns the association of Merton with LTCM as a proof that the formula does not work. This is clearly hogwash - LTCM did not go down because of miscalculation of options prices but because of 20x leverage.

    Finally, as a practical matter, dynamical replication and the options valuation formula was invented by Kassouf and Thorpe sometime around 1967. Their hedge fund, Princeton-Newport Partners, was one of the most successful of all time. They did dynamic hedging of convertibles. And here comes the juice - most of the time, a convertible trader is long the bonds, and therefore long gamma. This means that large, black-swan-type moves actually benefit a trader who is long gamma. Taleb and Derman had worked all their life for market makers, who are short gamma most of the time, therefore for them the imperfections of dynamical hedging can be fatal. So they are not so wrong about dynamical hedging, as a practical matter, but their paper is trash and does not add anything new to the table.
    Jan 04 18:17 pm |Rating: +2 0 |Link to Comment |View article
  • Gaza War: Expect a Spike in Oil, Gold
    how is a war in Gaza news? Maybe to someone who doesnt follow the international news, or maybe too young to remember just how old is this war? And, last time i checked there were no oil wells in Gaza. To finish this line of argument, I also doubt there are wealthy Gazans who will rush to buy gold as a way to save their savings from wartime inflation/devaluation.
    Jan 04 09:01 am |Rating: +8 -9 |Link to Comment |View article
  • Post-Madoff Hedge Fund Phenomenon: Some Players Start Their Own Funds
    nice article, until the last paragraph - hedge funds have notification periods of at least 30 days and perhaps more. This means two things, first managers knew the exact figure back in November and, second, certainly raised cash to meet the redemptions way back then.
    Jan 02 08:18 am |Rating: 0 0 |Link to Comment |View article
  • Split Strike Is a Valid Strategy, Despite Madoff Scandal
    the call options we are talking about here are plain stock options, and for puts, the index options. Evaluating this requires sophistication not available to average Shmoe - in fact i would compare this to dispersion trades, except this is even more complicated due to the "split".

    For what its worth, Markopolos, the guy who sounded alarm to the SEC and anyone who would listen, definitely thinks that the strategy as stated is incapable of the results Madoff showed. Markopolos argues, and I agree that "splitting" the strike would actually make results worse, not better on average.

    And suppose someone is evaluating a manager who is claiming that the key to performance of this split strike strategies is stockpicking like Madoff claimed - that would be a definite red flag.
    Jan 01 09:09 am |Rating: 0 0 |Link to Comment |View article
  • Renaissance Technologies' Data Speaks for Itself
    As a suggestion of what to test, why not run the 13F portfolio for the quarter subsequent to the filing, and just for fun - for the quarter *preceding* the filing. Each quarter, you must update the portfolio. Since 2005 that would be roughly 12 quarters - alot of work but perhaps worth it.
    Jan 01 08:58 am |Rating: +1 0 |Link to Comment |View article
  • Renaissance Technologies' Data Speaks for Itself
    RIEF is not a stockpickers fund, you got that much right. But based on what we hear, they are doing very well, thank you very much. And charging very reasonable fees to boot.
    Jan 01 08:55 am |Rating: 0 0 |Link to Comment |View article
  • United Socialist States of America? Not Quite
    hmm.... all true, but what is the relevance to current events?

    How about this - last year, around October, i became certain that people all around me in China and Russia would lose 70-80% of their money in the stock market - and i turned out to be right. But US markets lost 40%, and with a bit of bad luck i myself lost 60%. So how am i smarter than them, or how is the US a better place to invest? At least, in a good year you can expect the chinese or russian market to double, something you are not gonna get in the US.

    And so i am really wondering. And besides the best place to live (US?) may not be the best place to invest (BRIC?).
    Jan 01 08:49 am |Rating: 0 -4 |Link to Comment |View article
  • How Will Cummins Do in a Recession?
    we are in the middle of a serious recession here, and what matters is the balance sheet not the earnings! there was not a word on that in the article. funny isnt it given how many excellent companies are going down the drain because of stretched balance sheets.

    (disclosure: i havent look at cummins balance sheet, it might be pristine but it is the thing anyone who wants to buy the stock must look at)
    Dec 30 10:53 am |Rating: 0 0 |Link to Comment |View article
  • More ProShares Ultrashorts Tomfoolery
    You should have read their prospectuses! They have a chart somewhere showing exactly how much the fund is expected to lag its -2x objective given a level of volatility. Another thing concerns the observation that it has optionality/time-decay properties. Indeed, the prospectus is clear that in order to set up the fund they are buying a daily resetting swap from an investment bank. That means they are buying a dynamical hedge for an option of strike at zero daily. IT IS AN EXPENSIVE PROPOSITION!
    Dec 29 19:52 pm |Rating: 0 -1 |Link to Comment |View article
  • Bernanke's Great Lie: The Gold Standard and the Great Depression
    dude, when you say "I will write a paper" you make it sound like you are a professional economist - but you are not. Seems like you havent read Friedman's paper explaining that gold standard in the form you are promoting is simply not possible.

    You are onto something here, though. Your paranoid rants are probably caused by realization that the government ultimately decides how much your savings will be worth, and you dont like it. Neither do i, but getting onto gold standard would not change that.

    Finally, Bernanke etal like fiat monetary system for precisely the same reason you dont like it - that they can control the money supply.
    Dec 26 10:07 am |Rating: +4 -12 |Link to Comment |View article
  • Chinese Youth Will Propel Economic and Political Changes
    i think Blair must have been talking about something else. your title says "Chinese Youth Will Propel Economic and Political Changes" and ends with "What will be key is whether or not Chinese youth continue to spend".

    probably the oppposite is true - when the youth finds out in 2009 that future is not so rosy and they cannot expect to get bigger and more expensive toys very year, then some of them will turn attentions to forcing change in the country.

    in fact, everyone including the communist party chiefs knows that the key to political stability in china has been the economic prosperity of the past 20 years. Sadly, China really needs a crisis now to force the necessary changes - so that it can prosper more later.
    Dec 26 09:28 am |Rating: +1 0 |Link to Comment |View article
  • Don't Be Scammed by Madoff Investor Sob Stories
    Madoff was not a hedge fund, it was a broker-dealer. That means two things -
    1) FINRA is the regulator, not SEC.
    2) SIPC is on the hook for compensation, up to $500K.

    So, FINRA should be taking the blame. Markopolos was complaining to the wrong agency, and of course its undertandable why. FINRA is a "self-regulation&... authority which is stuffed by wall-street shills, it always takes the view of the industry and never of the investor rich or poor. Congress should shut it down and give all authority to an improved SEC. And instead we get Obama promoting a FINRA person to SEC, what a joke. Trust the wolf to protect the lambs, because wolf is the most knowledgeble and dedicated to lamb (meat).
    Dec 22 02:13 am |Rating: +2 0 |Link to Comment |View article
  • Artificial U.S. Dollar Rally Is Coming to an End
    beyond the blah blah about the long-term vs short term, what do you think the underlying fundamental driver is here? Name one or at most two.

    imo, the main driving factor in the dollar recovery was that the fed qwas done cutting and ECB just beginning. And if you wanna talk about real economy, instead of interest rates it is the same - US will be coming out of recession in 6 months, where europe is just sliding into a another multiyear malaise. And if political divisions surface, as i think they will, people might look at ECB as an organ without the backing of a national body with political authority. So far, for the first 10 years it hasnt been a problem, but as we are painfully reminded this year, any structural weakness eventually playes its role.
    Dec 19 11:00 am |Rating: +1 0 |Link to Comment |View article
  • REIT Watch: ProLogis is Undervalued
    they are toast
    Dec 19 10:48 am |Rating: 0 0 |Link to Comment |View article
  • VIX Withers Down Below Technical Support After Huge Job Loss Catalyst
    The phrase used in the article "VIX options" is a dead giveaway - there is no such thing, or actually there is but they are not actively traded and anyway they are not what this author thinks it is. Hahaha...
    Dec 07 11:06 am |Rating: 0 -1 |Link to Comment |View article

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