Nobel laureate Robert C. Merton challenges traditional models used by investors to measure sovereign and financial system credit risk, while proposing an alternative framework. Read more
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In part two of this discussion, Kevin Harney discusses the effects of the critical assumptions in finance and what can be done differently. Read more
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Finance rests upon several critical assumptions that have logical holes. Among the assumptions are: Brownian motion and normally distributed outcomes. Here is a discussion of some of the effects caused by these assumptions. Read more
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Could it be that the Holy Grail has been spotted at the recent Chicago Board Options Exchange (CBOE) Risk Management Conference? Well not quite, but there was much discussion about what I believe to be the most significant development of … Read more
2 Comments Could the derivatives market finally be listening to Albert Einstein? As you may recall, Einstein famously stated, “Make everything as simple as possible, but not simpler,” and according to the Reuters article “Simple Options Thrive in Risky World,” that is exactly what is happening. Simple, plain vanilla options that hedge risk are beating out the more exotic, custom-designed option structures. Read more
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The world is flat, or so people thought, until enterprising Greek philosophers challenged the notion in the 6th century BC. More than 2,000 years later, Ferdinand Magellan made a practical demonstration of that fact when he circumnavigated the globe. Although stocks in 2011 sailed through periods of sunshine, wind, and rain, many equities markets ended up flat just the same. Nonetheless, some investors proved that it is possible to make money in this market — and they did so writing covered calls. Read more
7 Comments As you are aware, the derivatives markets never sleep. There is always something going on. Following a year of turmoil concerning regulation and the use/misuse of derivatives, many stories from this rapidly growing segment of the investment industry warrant your attention. Read more
Leave a CommentMatthew T. Moran discusses using options and futures to manage risk and improve income. Read more
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The trading of options is quite mysterious to many investors. Some view the use of options as nothing more than gambling. One may place small bets with the potential for very large gains. Unfortunately, just like bets at a casino, the options trader who bets on a large move in the price of an asset is rarely the winner because most such bets expire worthless. As Kerry W. Given (a.k.a. Dr. Duke), founder of Parkwood Capital, points out in No-Hype Options Trading: Myths, Realities, and Strategies That Really Work, “The casino establishes a game where the casino holds a statistical edge. . . . Your model for trading options should be the casino owner, not the player at the tables.” His goal is to teach investors how to profit from the use of options while intelligently managing the risks involved. Read more
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When Warren Buffett recently disclosed a 5.4% position in International Business Machines (IBM), it took almost everyone by surprise. How did the Oracle of Omaha manage to build a $10.7 billion position in the technology bellwether over the course of … Read more
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