Prediction markets and Brexit

My day job leaves little time for blogging, but I want to get this down before the whole topic is history.

The Brexit referendum begins in just a few hours. The Leave side was showing momentum prior to the murder of Jo Cox, but since then, pretty much all polls have been stuck at “too [...]

Cryptography Part 2: More rambling

Impossibility proofs have always fascinated me. Solving a problem is one thing. Failing to solve a problem is another. But there is something really special about proving nobody can solve it, ever, even if they are smarter than you. (Guess where I am going with this.)

The Delian problem is provably unsolvable. This was not [...]

Cryptography Part 1: Drunken rambling introduction

There is a series of posts forming in my head. I have no unifying theme nor particular audience in mind, so they will be even more rambling and incoherent than usual. Also I plan to have a drink or two before each just to complete the effect. You have been warned.

Let’s play a little [...]

Just what are you implying?

Tracy Alloway points us to another fun indicator:

Type JCJ GP on your Bloomberg.

You’ll get a chart that looks like this:

It’s the CBOE’s S&P 500 Implied Correlation Index — based on options expiring in January 2011. It’s a basic measure of the correlation of stocks within the S&P 500, and you can see [...]

Links

Hugh Hendry May 2010 commentary. He seems to be expecting an event in the Japanese bond markets.

R.I.P., Martin Gardner

Must-see motivational speaker video.

Even more must-see video on the European bail-out. I love their explanation for why America is a better bet.

Never buy anything you don’t understand

Once upon a time, I almost went to grad school to study Theoretical Computer Science. So when Alea and Freedom to Tinker mentioned this paper, I had to read it for myself. The paper is titled “Computational Complexity and Information Asymmetry in Financial Products”.

Traditional economics argues that fi nancial derivatives, like CDOs and CDSs, [...]

Bond crash/course: Swap spreads

When we abruptly stopped last time, we had just finished figuring out the Present Value of the variable side of the swap I offered you:

PV of variable side = 1 – P(tN)

…where tN is the time of the final payment at the swap’s maturity, and P(t) is the discount factor derived from [...]

Bond crash/course: Swap pricing

Once again, I need to talk about something else before I discuss swap spreads. I could skip over this, but the details are actually somewhat interesting. And the math below is not as bad as it looks. Really.

To understand swap spreads, we need to understand a little bit about swap pricing. So here we [...]

Bond crash/course: Price, Yield, Duration

As mentioned in the intro post, if you have a zero-coupon bond with face value F maturing in N years and trading today at price P, to determine the yield you have to solve this equation for y:

F = P*(1+y)^N

But remember that bond traders always think in terms of yield, not price. They would [...]

Fun with uniform distributions

(Update: If there are too many numbers and equations below, Mike at Rortybomb has created a fantastic post illustrating the principles graphically. And he even uses lognormal distributions like a real financial engineer.)

In my earlier post on the “Geithner Put”, some people objected to my model as unrealistic. Which is true. So, using ideas [...]