Economists Recieved Nobel Prizes in Economics for Causing Current Crisis

[Vanguard]

Perhaps you might want to start trying to find the path out of tardness.

[KrazyHorse]

Originally posted by Kidicious
Like I said before. You are more than welcome to tell us how the assets are priced.

No via Black Scholes. They were priced via average historical default rates, variance in default rates and correlations between default rates over different market segments. They did not account for the phenomenon of widespread jingle mail due to a housing price drop (which is the put option being discussed in your article).

[KrazyHorse]

Originally posted by Vanguard
Perhaps you might want to start trying to find the path out of tardness.

You are entering a world of pain, son.

[Kidlicious]

Is there a way to value MBS? Can you comment on the impact of the implied option below?
How to value mortgage-backed securities is a $23,000bn question central to the success of Tarp 2. Mr Paulson, and all US taxpayers, hope the MBSs held by US banks are worth more than the 53 cents on the dollar suggested by indices that track AAA-rated subprime-mortgage bonds. Apply option theory, however, and they could be worth far less.

Look at it like this. Imagine you bought a $100,000 house a year ago, with a $10,000 down payment and a 20-year mortgage of $90,000. This is a bet: if the value of the house rises, you are in the money. If it falls, you can walk away and drop the keys of your house (so called “jingle mail”). You lose the original $10,000 investment, but are safe in the knowledge – strange in Europe, where debtors are pursued to the grave – that the lender cannot seize your other assets. Becuase of this your mortgage, in fact, was not really a loan, but an option: it allowed for gains if house prices rose but cost relatively little if prices fell. Crucially, banks have not properly accounted for this optionality.

In the example, take a mortgage’s loan-to-value ratio as the option’s strike price. Assume a 5 per cent fall in house prices as the volatility, and the option embedded in your mortgage is worth $44,000, using Black-Scholes. Now take this year’s 30 per cent fall in house prices. Because extra volatility makes having the option to walk worth more, the option’s value now rises to $63,000. In extreme situations, it could rise to 80 per cent of face value.

The Securities and Exchange Commission has relaxed mark-to-market rules to ease the pressure on banks. But that does not hide the fact that the value of many MBSs could be very low indeed as most of their worth rests with an option given away to borrowers by banks for free!

responses

[KrazyHorse]

This thread should be called "somebody who doesn't even understand how supply and demand work complains about complex derivative pricing schemes".

[KrazyHorse]

Kiddy, where is your block quote taken from? It's not the article you linked to.

It also simply reiterates the fact that THE OPTION VALUE WAS NOT TAKEN INTO ACCOUNT

[KrazyHorse]

Maybe it should be called "Kid self-pwns for the hundredth time"

[KrazyHorse]

Or "KH welcomes himself back by ****ting in Kid's mouth as onlookers giggle"

[Kidlicious]

Originally posted by KrazyHorse
Kiddy, where is your block quote taken from? It's not the article you linked to.

It also simply reiterates the fact that THE OPTION VALUE WAS NOT TAKEN INTO ACCOUNT

Why the **** are you still on about the put option? Listen, I absolutely will not swap spit in the shower with you.

The page clearly talks about using the Black-Scholes model. The responses talk about it also.

Again, if you think I'm wrong then tell us what method is frequently used.

[KrazyHorse]

THE RESPONSES TALK ABOUT THE PUT OPTION THAT SHOULD HAVE BEEN PRICED IN BUT WAS NOT, YOU ****ING IMBECILE

[KrazyHorse]

Seriously, is it that you like being humiliated publicly? Is it a sexual thing?

[Dauphin]

This thread is boring

[Dauphin]

The Mythbusters calculated that the lethal amount of force required to kill a fish is 8.15 pounds per square inch. However, the instrument that measured PSI was not fast enough to register the impact of the bullet, so the Mythbusters instead opted to use stickers that measured G force. After firing a single 9 mm bullet, the Mythbusters saw that the shockwave of the bullet was enough to trip all three stickers (50G, 75G and 100G). This means that the shooter does not necessarily have to hit the fish in order to kill it.

[Kidlicious]

Only in your one sick stupid little mind.

Let me spell the argument out for you so that you can get the slightest inclination that you are getting pwned. It's whether or not the BS model is used to value the assets in question.

You haven't provided any evidence at all to the contrary, yet you won't shut your ****ing mouth, you arrogant ass. So you are pwned.

[KrazyHorse]

You provide no evidence! You provide nothing! You want to destroy capitalism! You criminal!