Posted on 02/16/2008 2:59:00 PM PST by Toddsterpatriot
I have already posted my thoughts on a great many things.
You are the “superior” intellect and the “brilliant” one; post your superior brilliance for once.
Can you recognize that the two underlined numbers are not identical?
A lot less than the half quadrillion is at risk, but the amount is modeled based on a number of assumptions about interest rate trends, volatility, repayment risks, etc. The uncertainties propagate to the model. When the at-risk amount changes based on the economy that could add systemic risk to the economy as a whole. Those are all generalities, but applicable to interest swaps, they are not as benign as the sports bet example you gave.
Can you post something other than a question?
Expound upon all your derivatives knowledge that gives you the right to be so condescending against those who have a problem with it.
When you can figure out how to do that, get back to me.
Excellent! Tell nic.
Those are all generalities, but applicable to interest swaps, they are not as benign as the sports bet example you gave.
I never claimed they were benign.
As I said in post #63, and have repeatedly restated in numerous ways:
Nic: Asking questions to others about their thoughts or concerns regarding derivatives does not equate to a THREAD ABOUT DERIVATIVES.Toad: Especially when the people I ask know so little.
So then tell us what you must "know so much about: derivatives." Let's hear what YOU have to say about derivatives, toad......for all those who "know so little." Now's not the time for you to make demands; post what you know on the thread you posted so you could "talk about derivatives." Don't run away......we're all watching what you got to say.
Go ahead.......you got da floor!
Jack Bauer's of more interest than reposting my earlier posts to your repeatedly inane questions and demands......if ya ever get around to posting more than demands and questions......I'll respond to that.
I don't care if this doesn't live up to your definition of a thread about derivatives.
Especially when the people I ask know so little.
I sure pegged you with that one. LOL!
tell us what you must “know so much about: derivatives.” Let’s hear what YOU have to say about derivatives, toad......for all those who “know so little.” Now’s not the time for you to make demands; post what you know on the thread you posted so you could “talk about derivatives.” Don’t run away......we’re all watching what you got to say.
Go ahead.......you got da floor!
*crickets*
A book cannot be advised, perhaps recommended.
Try to appreciate that even the creators of derivatives don't understand the possible outcome from their performance.
Hence no book worth reading.
So you an Nic are really arguing about the color of ghosts. That's if you aren't debating straw men (your bet example or his contention that high nomimal values of derivative cause problems). There are several potential problems with derivatives, the most basic being that the at-risk values are modeled based on assumptions of normality and a large financial upheaval could greatly increase the at-risk amounts. A simple example should suffice: I trade you fixed rate securities in exchange for your floating rate. If interest rates drop you are fine, but my at-risk value goes up, potentially way up if depending on leverage, margin and hedging that I set up, if I am forced to sell into the lower rate environment. The same scenario could happen with higher rates if I trade for variable rate obligations (payments).
My bet example is not a straw man, it is a simple representation that demonstrates value at risk is not the same as notional value.
A simple example should suffice: I trade you fixed rate securities in exchange for your floating rate. If interest rates drop you are fine, but my at-risk value goes up,
If we write a derivative we're not actually trading the securities, just the interest payments. And the term is value at risk , not at risk value.
Right, VAR. Your example is not representative of the risks involved. What would make it more realistic is if your bet size changed automatically based on the teams’ subsequent performance. In that case it is possible, although unlikely, that if one team’s players all died that your bet could become very large.
In my example, the risk is fixed at the $10 bet, despite the asset value that each team represents.
Interest rate risks are not fixed, even in the simplest possible swap, so your example doesn’t reflect reality.
I never said interest rates risks were fixed.
so your example doesn’t reflect reality.
I never said my swap reflected the reality of interest rate swaps. My example simply showed that VAR may be tiny compared to notional value. I kept it simple so even the clowns like nic could understand. I guess I overestimated his intelligence.
If you want a real world example with a fixed risk, look at selling an equity put option.
I gave a more real world interest rate swap example here.
I haven’t forgotten your comment, I’m just pinging myself before I lose it.
Thank you for your discussion which seems the most relevant among 150 comments here. The $516 Trillion matters. The original report is still at bis.org (click on Statistics). The reporting banks only listed $11 Trillion on their balance sheets, as assets or liabilities at 6/30/2007. Surely, their real exposure is much higher now, since many currencies, commodities and rates have changed drastically since then. Furthermore, many of those gambles have reached maturity and bankrupted some institutions.
Especially if you want to scare people who don't understand derivatives.
The reporting banks only listed $11 Trillion on their balance sheets, as assets or liabilities at 6/30/2007.
If you say so.
Surely, their real exposure is much higher now, since many currencies, commodities and rates have changed drastically since then.
So?
Furthermore, many of those gambles have reached maturity and bankrupted some institutions.
Or not.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.