I hope you are well. I see you are busy...glad for that...nonetheless, are you available for crash course in binomial trees? Say an hour or so, on me? Prepping for a job interview. I don't think we ever covered this in 9814.
If not, I understand, & best wishes anyway.
No way those guys are stupid. Here is an article about Jack Meyer who was the CEO of Harvard endowment 1990-2006. The article is from 2005.
Smart, probably so.But while we're invoking Wall Street maxims, there's this: "Never confuse brains with a bull market."
Oct. 17 (Bloomberg) -- Harvard Universitys failed bet that interest rates would rise cost the worlds richest school at least $500 million in payments to escape derivatives that backfired.
Harvard paid $497.6 million to investment banks during the fiscal year ended June 30 to get out of $1.1...
Often the data-management part of the work I've done in Excel in support of some model would beg for more efficient ways to be done. This isn't my specialty, but I gather that the memory requirements -- the overhead -- of storing Excel row-and-column data (address, properties, etc) must be...
Thanks all for the input.
I would like to do a class project rooted in a practical market application. If anyone has something they need done in SQL with VBA, and it's suitable in scope for the project, I'll do it gratis in exchange for a reference.
My industry references are solid. If...
Better late than never, and in the interest of completion, the remaining notes are attached.
11/17 Effect of Elementary Row Ops on Determinants: Review.
11/24 Determinants: Review; Cramer's Rule.
12/01 Properties of Vector Space Ops; Dot Product, Norm and Distance.
12/03 Properties of Vector...
I'm inclined to think a curriculum in a hot new field is at least partly industry-driven. I'm inclined as well to suspect that the industry said, "give us people who can do the fancy math."
Separately, nobody can take a good idea and run it into the ground like Wall Street when in a regime of...
Banks can use a few simple principles to educate investors.
By ALVIN LEE | <CITE>From today's Wall Street Journal Asia</CITE>
Hong Kong's legislature recently began an investigation into retail sales of complex credit derivatives linked to Lehman Brothers. Small investors in Hong Kong have...
Congratulations! I hope you didn't take communion.
Just remember the words, "Humanae Vitae"
(Humanae Vitae - Encyclical Letter of His Holiness Paul VI on the regulation of birth, 25 July 1968).
Someday when you're a bit older you'll be amazed.
I'm not sure I want to get started on this.
What's meant by "over the hill?" -- that place where the hot money isn't?
There's a lot more to a culture than that. Thankfully.
But as for the culture itself, unfortunately, bad money drives out good. There is a moral corollary to that...
Interesting. Most of the people I talked to day in and day out expected this very thing.
During the summer of 2006, one of traders on the floor of the NYBOT and I had this chat:
SAIL: "Chaz, clock a ticket!"
[CHAZ obliges by timestamping a buy/sell ticket]
[SAIL grabs ticket, and scrawls on...
Harry Markowitz says valuation is the critical step.
In the early 1950s, when young Harry Markowitz was looking for an area of economics to pursue, a chance encounter with a stockbroker in Chicago led him to apply a new logic about risk to what had been an investment industry based on touting...
ICE is an amazing story. There's even the additional drama of ICE and NYMEX sharing the same building. NYMEX has threatened to toss out ICE on more than one occasion.
I *really* wish I had been aware of this talk, I would have loved to be there.
Event: Lessons from the Subprime Market:
Implosion and its Consequences
Date: November 10, 2008
Time: 5:30 Registration, 6:00 Program Begins, 7:30 Reception
300 Madison Avenue (at 42nd Street)
The International Association of Financial...
Mon, Oct 27, 2008
Note: The class for 10/22 was largely a review of 10/20. The class ended with an introduction of Diagonal Matrices which is included in the notes for 10/27.
Mon, Oct 20, 2008
Proof that, if A is invertible:
AX=0 has only the Trivial solution;
A can be tranformed into I by a finite series of elementary operations;
A can be expressed as a product of elementary matrices.
The headline is a bit misleading in light of the actual quote by the Moody's employee, and the CEO's statement which appears at the end of the piece.
The irony in the theme is hard to top. In John Moody's autobiography, "The Long Road Home," he details being offered a bribe in order to...
Ah. My perspective is the US approach, as this is what is in question.
The problem with the OTC market in the case of something that is so large and is linked to statutory capital was expressed well in the piece, I thought:
Separately, markets at large require transparency (along with...
I think your reasoning is sound, but I'm not sure what precedent the past provides for "imposing an exchange/clearing house." Can you explain?
The imperative from the regulatory side is the issue of statutory capital requirements.
I posted the following to my blog last night, after the...
Derivatives and Mass Financial Destruction
Complex financial products can be useful if regulated
Proposals for a makeover of the financial system include reform of the credit derivatives market, which offers over $50 trillion of default insurance coverage. Do investors need that much...
By David Mildenberg
Oct. 21 (Bloomberg) -- Bank of America Corp., the largest U.S. consumer bank, lost money on credit cards for the first time since its January 2006 purchase of MBNA Corp. as more borrowers missed...
I'm sure the good people of Boston are relieved. The mayem that ensues when the Sox get lucky has been known to be deadly.
And, having lived in the Tampa area for half my life, all I can say is...
The IAFE Education Committee and the Fischer Black Memorial Foundation are pleased to invite you to
How I Became a Quant: Boston
Thursday, October 30, 2008
5:30 Registration, 6:00 Program, 7:30 Reception
Massachusetts Institute of Technology
Building 4, 77 Massachusetts Avenue...
The International Association of Financial Engineers is pleased to invite you to
Hedging Illiquid Assets
A Liquidity Risk Committee Event
Tuesday, October 21st
32 Old Slip
6:00 Program Begins
Peter Rappaport, JP Morgan...
The Panic of 2008 is a crisis of trust. Investors don't trust the value of bad debts enough to offer market-clearing prices. Banks don't trust one another to stay in business long enough to do business together. And there's definitely no trust that Washington can avoid creating costly new moral...
Lehman Credit-Swap Auction Sets Payout of 91.38 Cents on Dollar
By Shannon D. Harrington and Neil Unmack
Oct. 10 (Bloomberg) -- Sellers of credit-default protection on bankrupt Lehman Brothers Holdings Inc. will have to pay holders 91.375 cents on the dollar, setting up the biggest-ever...
you can read my rebuttle to the VIX thesis in that article (or a similar one in Bloomberg) on my blog.
The short selling 'debate' has been compressed into soundbytes and, unfortunately for those accustomed to thinking in soundbytes, it requires a bit more discernment than that.
Oct. 9 (Bloomberg) -- Danilo Coronacion oversees 15 percent of global coconut oil production at CIIF Oil Mills Group in the Philippines. These days, he spends a lot of time worrying about events half a world away in London. The name of his pain? Libor.
CIIF has more than $60 million of debt...
Mon, Oct 6, 2008
Vector Spaces, continued
Relating a Ring to a Vector Space
Proof that if a system of linear equations has 2 solutions, it has infinite solutions
Definition of Linear Algebra
Definition of the Transpose of a Matrix
Properties of the Transpose
Yes, that does sound very familiar. Thank you.
I don't wholeheartedly agree with the arbitrary conclusion, but I am also not quite up to arguing an alternative.
...except for the empirically obvious one: It would have been better, thus far, had the other arbitrary, less "artificial"...
Consumer credit has shrunk substantially (http://www.bloomberg.com/apps/news?pid=20601087&sid=araFtj3EAFFw&refer=home).
This looks to be self-reinforcing, too.
I wonder if it will un-shrink as people need to access credit lines to help meet those reset premiums.
I pity someone in that...
By Jody Shenn
Oct. 7 (Bloomberg) -- Increases in benchmark London interbank offered rates may boost homeowner defaults on resetting adjustable-rate mortgages, contributing to a ``vicious cycle''
in the credit...
Hydrogen is as close as the nearest water molecule. Prying it loose is a different matter. Your point about why it hasn't caught on is my point... "enormous..."
Solar? I've been hearing about solar for 30 years. If it could be made to power your car from your roof, etc. etc., like we've been...
Stop to consider just why crude oil has become such a ubiquitous energy supply. Right off the top of my head: It is historically cheap; it is easily transportable and loses none of its energy storage in the process. Coming from the ground, as it does, its ownership is a simple...
By Michael Tsang
Oct. 2 (Bloomberg) -- One of the stock market's latest villains is a 32-year-old self-described ``math geek'' from a Minneapolis suburb who won't move to Wall Street unless they let him wear flip-flops.
Matthew Paschke, who manages the $165 million Grizzly Short Fund at the...
Every single word of this is a keeper. Don't take the bait: it's not about race. It's about lax lending standards: bad business excused by another failed leftist idea cloaked in racially loaded terms. It's typical Marxism: find a "victim group" and exploit their "cause" to hijack taxpayers...
Fannie Mae Eases Credit To Aid Mortgage Lending - New York Times
September 30, 1999
By STEVEN A. HOLMES
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will...
Nov 6, 2008 Credit Crisis: Actions Taken and Lessons Learned
Stephen Figlewski (Stern School of Business), Gregory Hopper (Goldman Sachs), and Petter Kolm (Courant Institute, NYU) will discuss ramifications of the latest developments on Wall Street.
Yes of course there's money on the line. Their taxpayers will benefit from the price ours will pay. It's tacit acknowledgment of our leadership in markets that such a remark would emmanate, even if it has a whiff of indignation, guilt, and presumption about it.
What would happen if we changed the rules? Let's find out.
By HOLMAN W. JENKINS, JR.
The Paulson plan's defeat on Monday was not the end of the world, and may not even be lasting. But it does invite us to revisit the sideshow of mark-to-market accounting.
Even as this agnostic...
I'm ambivalent now. Trichet is insisting the US pass the plan. Of course, that's enough motivation for congress -- they can't do it because it's workable, they can only do it if it pleases Europe.
But for reasons that have taken decades to form and would take too long to explain, my sense is...
Wednesday, Sept. 24, 2008
Properties of Matrix Operations, continued
Properties of Matrix Multiplication
Properties of Scalar Multiplication
Definition of Vector Space
The homework assignment is from the text:
Andy, a free people is the best economic engine there is. This situation is temporary. The greatest risk coming out of it might just be overregulation that could stagnate world growth for the foreseeable future.
I'm actually soliciting objections to this plan, because I don't know what its drawbacks are.
I don't think it would require a dictator to work, however. Do you?
I do think it's going to take far more charisma than congress has to calm the markets now. They've basically shown themselves to...
When people make prices. The over-the-counter market might just become the market of preference for the forseeable future.
 Bit of a blanket statement, I apologize. The point was that when the objectively "unpriceable" assets are priced, the market will know where it stands.
You wouldn't know it from all the panicky headlines but the current turmoil on Wall Street is not the world's first financial crisis. Latin America has suffered more than a few, and many were on a larger scale relative to the economies they hit.
One was triggered by Chile's 1982 economic...
Sept. 29 (Bloomberg) -- At 11:50 p.m. on Sept. 25, less than three hours after JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon announced the takeover of Washington Mutual Inc., a 14-seat plane took off from White Plains, New York, carrying retail-banking chief Charles Scharf on a...
As it is geared to simply keep capital flowing, I don't think an emergency intervention such as this is intended to address the reticence of banks to loan - that's something only their (hopefully chastened and wisened) judgments about risk and reward can address -- and under no circumstances...
The market doesn't seem to think this deal is done. Or, if done, will work.
The market may be obstinate, but she isn't stupid: There have been at least three times in the last week that some congressman has said, "we have a deal," and there was no deal. She's skeptical.
"Here Nancy, hold this and stand in front of the camera. Smile!"
Nancy Pelosi is like the puppy fetching the paper: someone else wrote it, someone else bought it. But she gets the photo op. That's how you keep 'em appeased.
Your copies of the movie "Wall Street" might become...
I don't know if any 4100 students are actually reading this thread but if you are, and you have the text, I would be most grateful if you could copy up the homework assignments from the text and forward them to me.
Thanks in advance.
Searching for some background info to get a better handle on Credit Card structures and the size of that portfolio, I came across this Fitch document from 1998.
It appears to be a hybrid between research and marketing, an "infomercial," if you will, for credit card structures.
The problem is alleged, and is alleged to be intentional for purposes of camouflaging credit risk.
If the LIBOR spread is unrealistically low, viz a vis some other benchmark, whether it is "camouflaging" or not, that in itself is an indicator.
The current circumstance, however, isn't one of...
Swap Spreads Widen to Record Amid Bailout Concern (Update1)
By Liz Capo McCormick
Sept. 24 (Bloomberg) -- The spread between the rate on a two-year interest-rate swap and Treasury yields surged to a record on concern that U.S. lawmakers may delay a Treasury Department...
The executive branch is asking the legislative branch to act. It's the separation of powers at work. It ain't always pretty, but, like any other market, it works when everyone shows up and does his part faithfully.
By Erik Holm
Sept. 24 (Bloomberg) -- Billionaire Warren Buffett, calling turmoil in the markets an ``economic Pearl Harbor,'' said his $5 billion investment in Goldman Sachs Group Inc. is an endorsement of the Treasury's $700 billion bank rescue plan.
``I am betting on the Congress doing...
I've been watching the testimony of Mr. Bernanke. The man has the patience of a saint. These...individuals... in congress don't seem to grasp markets. Some are really off the wall, and are using their time allotments for political rants.
Meanwhile, the fire in Rome is being barely held in...
I just want to add that, in my opinion, Bernanke's remarks seem so politically naive because he's not grinding a political axe. He's a student of economics and particularly of crises (having authored, they say, the authoritative study on the Great Depression).
This is why I didn't dismiss or...
Somewhere I posted an article from Wharton that held that demand for quants would increase.
As long as there is data, there will be a need for quantitative skills. As long as there is uncertainty, there will be a need for quantitative skills. The demand picture that has driven the market...
Does "hold to maturity" suggest "no default?" I don't think it does; and therefore the idea doesn't imply "best case scenario" as one commentator is quoted in the article as saying.
Since Bob has connections with people who know Ann Rutledge, maybe he can get some clarification on this. ;)...
By Craig Torres and Kathleen Hays
Sept. 23 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke signaled that the government should buy devalued assets at above-market values to make its proposed $700 billion rescue package most effective in combating the financial crisis.
A conscience is only as useful as it is informed.
You may not be as greedy as you think you are. Just because Ayn Rand didn't distinguish between "greed" and rational self-interest doesn't mean you don't have to.
And there is a difference. Greed by definition is evil. Rational...
This is the rub. MTM accounting requires a "market value." What happens when the market is wide? Assets are marked down.
If you're a regulated entity with statutory capital ratios to maintain, then a marking of assets to "worst case" means you're going to have a "worst case" balance sheet...
Couldn't agree more.
This is where the marketplace of ideas, with all its imperfections and susceptibility to manipulation, gets to have its volatility spike.
The solution will not be perfect. But if all goes well, it will work.
WRT the Big Plan (that has been proposed since this thread...
It's been such a long time...
BUT, I think if you google around you'll find some translation possibilities...
look for something called f2c...
hopefully those will assist.
This is the natural course of things.
I don't want to make any sweeping generalities (because I am not "anti-regulation," just anti-ill-conceived regulation), but it might be noticed that it was regulation that brought us to this place to begin with: i.e. the forced mark-to-market of OTC...
I have only glanced at this AND I'm not a lawyer (please don't ask me what I mean by that remark)...
It seems one can argue that since a derivative securities transaction may result in the transfer of ownership of the reference security, while the goal of the transaction may be to mitigate or...
Couldn't cut and paste.
This isn't new news, of course. But as I'm trying to get my head around the size of the these ABS portfolios, I come across things like this.
If anyone has any clue how big the...
Sorry, that's above my pay grade. ;)
Actually, I think summaries are Doug's speciality, and I see he's on the job.
I just got to the part about how much money the IMF has dispensed to Russia, Asia Mexico, and Brazil, up to 2000. Amazing.
Bordo has also written about the cycle nature of...
Let's talk a little bit more about the VIX.
In the last post, when the VIX was at 36 or so, I said it wasn't high enough and indicated more shock was to come to equities.
Today, once more, the market eventually gave up and began its third major selloff of this week. Sure enough, the VIX...
Coming Soon ... Securitization with a New, Improved (and Perhaps Safer) Face ...
For generations, the strength of the U.S. housing market was due, in part, to securitization of mortgages with guarantees from the government-sponsored companies, Fannie Mae and Freddie Mac. Following the savings...
Coalition of Private Investment Companies
FOR IMMEDIATE RELEASE September 17, 2008
CPIC: SEC SHORT SELLING RULES
"TOUGH AND BALANCED"
Group Says Commission Understands Role of Short Selling
in Improving Markets for Investors
WASHINGTON, D.C., September 17...
If your potential insolvency threatens to bring down the governments of Japan, China and Luxembourg, the Fed might be your answer. ;)
Once again, if you think about it, the deal appears to be structured to keep the balance sheet solvent until the marks become real. The interest rate is a...
I think it might be useful to understand the difference between shorting borrowed shares and naked shorting.
In the first instance, there is no inflation of the float. In the second, the inflation is theoretically infinite.
Which sounds more reasonable?
And yet, everyone's doing it.
There was some discussion months ago about the credit crunch creating a "super" category of IB/Banks. I believe it was suggested by top bank ceo's including Pandit.
Lo, it's happening as we speak.
Hedge funds are the new "investment banks" (nominally...
Alain, I'm very surprised by your comment. I realize you were using hyperbole, however, as it's a common train of thoughts under the circumstances, it deserves some comment.
"Lender of last resort" is what the Fed is charged with being. I didn't see people lining up outside AIG with Brinks...
Mon, Sep 15, 2008
Writing a System of Linear Equations as a Matrix Equation
Homework handout with the exception of inverse problems should be completed by Monday, Sep. 22.
Right. Like handguns are responsible for crime.
Leverage can make a share of stock deadly, if you employ enough of it. Bad money is like bad morals. You can melt down every gun in existence, and people will turn to bats and pencils to dominate each other, if they have no sense of moral...
The buyers have to deliver bonds, though, and if they're speculative, they probably don't own them...could be a problem.
Many hedge funds are in a precarious place, I think.
One blogger writes:
Not sure how reliable his sources are, but it certainly makes perfect sense. Moneymill
Is it really a tautology to say that sound business practices involve making sound decisions? That a solid building must be comprised of solid materials?
You start a pitcher that has ability. You run the risk that he'll suffer a rotator cuff injury. In the even it happens, you manage it.
A short answer would be that you delegate authority to put capital at risk only to people who are fit for it.
When you have tons and tons of cheap money to play with, you can't grow fast enough to put it to work. You might tend to be a bit lax in your staffing criteria, your deal selection...
Indeed. How gauche to think that a southern bank would wind up owning Merrill!
I think I had the mechanics of the CDS obligations a bit backwards. In a default, it's the seller who pays face, it's the buyer that has to deliver bonds, correct?
Fear not, gents. Capital markets...
If you're the seller of protection, and you smell blood, you'd be shorting the stock and looking to aquire the bonds to fine tune your hedge, would you not? Or scrambling to close out your trade. Or both.
By Aline van Duyn and Michael Mackenzie in New York
Published: September 14 2008 20:26 | Last updated: September 15 2008 00:56
Wall Street dealers held an unprecedented emergency trading session on Sunday afternoon in a frantic effort to prepare for the possible bankruptcy of Lehman Brothers...
The Bloomberg story this am estimates that Fannie and Freddie hold about $550 billion of the roughly $1,000 billion in Alt-A's that are outstanding (representing roughly 3 mm mortgagees).
Now you know the rest of the story.
One of the first books I ever read about the industry. VERY dated material, even if the title is eerily prescient. The "fallen" Lehman was resurrected by Shearson and then spun off years later, if I recall.
Spreads down quite a bit.
It's a rampage of rumors. If they haven't taken them down by now, I don't know if they can.
On the other hand, this doesn't look like good news...
Yeah, I suppose my comment begs an explanation, but I was getting busy and it is a subject that is more suitable for dialogue.
I did think of one thing I wanted to add, however: I didn't read the story closely enough to see if trading had been halted in the stock on the appearance of the...
I meant market-making, but that's a good question; insofar as the article only talks about "trades," that's what I should have said.
The reference to market-making came about from a similar experience in EMLX in the summer of 2000, but the argument was about replacing the market-maker and...
New York. Like all true loves, there are moments when you think, "oy!" But that's the sign that you love.
To love New York is to love humanity and life, in all their wonder, joy, peril, trial, and grind.
A bit of follow up...
Fannie, Freddie Derivatives Default May Trigger Dealer Losses
By Shannon D. Harrington
Sept. 9 (Bloomberg) -- The takeover of Fannie Mae and Freddie Mac may cause ``significant'' losses for banks that trade credit-default swaps following a technical default on the...
Mon, Sep 8, 2008
Homogeneous System of Linear Equations defined.
Homework assigned from the handout (see introductory post below).
Long-Term Capital: It’s a Short-Term Memory
By ROGER LOWENSTEIN
A FINANCIAL firm borrows billions of dollars to make big bets on esoteric securities. Markets turn and the bets go sour. Overnight, the firm loses most of its money, and Wall Street suddenly shuns it. Fearing that its collapse...
Fannie, Freddie Credit-Default Swaps May Be Unwound (Update2)
By Oliver Biggadike and Laura Cochrane
Sept. 8 (Bloomberg) -- Investors may be forced to unwind contracts protecting $1.47 trillion of Fannie Mae and Freddie Mac bonds against default after the U.S. government seized control of...
This is an unofficial thread.
Class notes from Linear Algebra with Matrix Methods, Fall 2008, will be posted here.
The instructor is Alfred Friedland; the class meets M/W 6-715pm.
All students are encouraged to review the notes and comment in the event of errors and omissions.
The notes are in...
Funny you should ask.
Last night after class I went and saw Steve Lukather at BB Kings.
Sunday night I saw Larry Carlton at the Blue Note.
I should delete this because I realize nobody will have a clue who these guys are...
Haven't done this for bonds, but for other vanilla instruments, it's possible to find a single gateway to the exchanges and use their API (for example, Globex).
For bonds the first place I'd look would be the Bloomberg terminal.
I think hear people queueing up to suggest IB...
Speaking of the IDE, Doug, even though I've done numerous things in C++ and dabbled in .Net with it, I still find the way it manages files to be mysterious. Can you point me to a tutorial on that aspect of it?
Yeah, but I learned something from Hull.
In the terms you use, it seems that you have a better shot doing great harm to a financial institution as an MFE than as a CQF. An MFE is more likely to be charged with coming up with an infrastructure that puts capital at risk, at least at a bank or a...
I looked at the CQF some time ago. I bought "Paul Wilmott Introduces Quantitative Finance." I talked to a finance professor, not affiliated with the MFE, about the CQF.
I came away with the impression that the CQF is more of a survey, and that is how I found Wilmott's book to be, as well. It...
You might want to run it as is, just to test it, in case there's an inadvertent error in the process of carving it up and adding the changes to your version.
Recall this is the one where you select the entire range, including the header.