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Economy
In reply to the discussion: STOCK MARKET WATCH -- Friday, 16 March 2012 [View all]Ghost Dog
(16,881 posts)12. Jesse's Café: An Anecdotal Peek at the Mispricing of Counter Party and Derivatives Risk
http://jessescrossroadscafe.blogspot.com/2012/03/anecdotal-peek-at-pitfalls-of-counter.html
Here is an entertaining excerpt from Janet Tavakoli, Collateralized Debt Obligations & Structured Finance, John Wiley & Sons, 2003. She reiterates the incident in the expanded second edition, Structured Finance, 2008.
This is a nice example of the mispricing of risk and the related fallacy of netting in the derivatives markets which I discussed the other day, Critical Mass: The Mispricing of Desrivatives Risk and How the Financial World Ends.
It makes the assumption about risk in Black-Scholes look like a firecracker.
Not everyone has a Tavakoli-class analyst watching their back. I suspect that there are a lot of unintended bagholders blissfully walking around out there. They are one flick of a button away from financial evisceration. They just don't know it. The implosion of MF Global was just a taste.
And that is what keeps the Fed and the ECB awake at night.
http://jessescrossroadscafe.blogspot.com/2012/03/anecdotal-peek-at-pitfalls-of-counter.html
Here is an entertaining excerpt from Janet Tavakoli, Collateralized Debt Obligations & Structured Finance, John Wiley & Sons, 2003. She reiterates the incident in the expanded second edition, Structured Finance, 2008.
This is a nice example of the mispricing of risk and the related fallacy of netting in the derivatives markets which I discussed the other day, Critical Mass: The Mispricing of Desrivatives Risk and How the Financial World Ends.
It makes the assumption about risk in Black-Scholes look like a firecracker.
Not everyone has a Tavakoli-class analyst watching their back. I suspect that there are a lot of unintended bagholders blissfully walking around out there. They are one flick of a button away from financial evisceration. They just don't know it. The implosion of MF Global was just a taste.
And that is what keeps the Fed and the ECB awake at night.
[center][/center]
http://jessescrossroadscafe.blogspot.com/2012/03/anecdotal-peek-at-pitfalls-of-counter.html
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Jesse's Café: An Anecdotal Peek at the Mispricing of Counter Party and Derivatives Risk
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Of course, D. (Looked, but didn't find yet the Weekend Thread). Or I'll post myself...
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#67