Make my Day......GOV Blagojevich arrested.

[Boris Godunov]

Yes, it's bull**** that a state Governor can appoint whomever he/she chooses to a Senate seat.

Some states have the rule that the person appointed has to be someone from the same party as the person vacating, which is better. But I think the best rule would be to allow the Governor to appoint a placeholder (from the same party) and require a special election within a certain period of time, perhaps 90 days. Or maybe until the next scheduled statewide election, which in this case would be next November.

[TCO]

Originally posted by KrazyHorse


Convenience yield is what you add in to yield to make futures prices behave like they would in perfect arb situation. They only exist when you are not free to sell an asset short.

Another step of dumbing down please.

[Jon Miller]

Originally posted by KrazyHorse


Errr..what about quantitative section?

On the practice test I missed some.

JM

[KrazyHorse]

Originally posted by TCO


Another step of dumbing down please.

In a perfect world where you can borrow and lend at risk-free rate, can buy and sell assets at same price, can sell short freely, no margin requirements etc it is easy to demonstrate that the futures price F0 settling at time t for an asset selling today at S0 is

F0 = S0 * e^(rt) where r is the risk-free rate

Imagine F0 > S0 *e^(rt). Then you should borrow S0, buy asset in spot, sell asset today in futures market settling at t and hold asset in between today and t. Profit = F0 - S0*e^(rt) (you owe S0*e^(rt) to the person you borrowed S0 from)

Similarly if F0 < S0 * e^rt you sell asset short today for S0, put money in the bank and buy asset today in futures market settling at t. When contract settles your money grew to S0 * e^(rt) so you make profit of S0 * e^(rt) - F0.

Now, if asset costs something to hold (physical asset like oil) there is a cost of carry associated with one of those steps (in the too high F0 case) so arb not possible in one direction. Similarly, if selling short is difficult then arb not possible in other direction. So this messes up your nice relationship enforced by 0 arb. Second part is called convenience yield.

[TCO]

So, you can't have a perfectly hedged position, if shorting not allowed. But can't you still buy the asset (the future or the current) that is undervalued? And earn a rent from that?

Explain again the conveneince yeild term, btw. I'm still not getting it. Honest, not teasing.

[Boris Godunov]

Can't we have one thread that doesn't devolve into mathematics?

[TCO]

Start one on classical music. Seriously. I lack a good appreciation, but think I might be bettered by same.

[KrazyHorse]

Originally posted by TCO
So, you can't have a perfectly hedged position, if shorting not allowed. But can't you still buy the asset (the future or the current) that is undervalued? And earn a rent from that?

Futures price is NOT expected price in future!

That is only true in risk-neutral world. Very important to understand this!

If people who are exposed to upward swings in price of oil are more risk-sensitive than people who are exposed to downward swings in price of oil then futures price of oil will be higher than the expected price of oil in future as more of them will try to hedge by buying oil in futures market.

So unless you can hedge perfectly or unless you have the right risk model you cannot even know if your expected return is higher than r, not to mention the fact that you will be accepting risk by taking any unhedged position.

[TCO]

You're losing me a little. I actually think there still might be some good points I could make although it would be painful for you as I grope along.

Want, not want?

[Zkribbler]

Article I, § 3 of the Constitution [dealing with the Senate] states:

...if vacancies happen by resignation, or otherwise, during the recess of the legislature of any state, the executive thereof may make temporary appointments until the next meeting of the legislature, which shall then fill such vacancies.

[KrazyHorse]

Originally posted by TCO
You're losing me a little. I actually think there still might be some good points I could make although it would be painful for you as I grope along.

Want, not want?

Have ~25 minutes before I go to gym.

[Boris Godunov]

Originally posted by TCO
Start one on classical music. Seriously. I lack a good appreciation, but think I might be bettered by same.

I'm sure if I did, KH would start talking about the mathematical relationships of harmonics or something like that.

[TCO]

Some other time, Kitty. I think I am a little limited in not having the futures valuation concepts trained that you have learned. Also, just still stlightlty think we could have interesting discussions about concepts. At the end of the day, it is all arbitrage and market efficiency.

[KrazyHorse]

No. Didn't actually formally take music theory. My violin teacher wanted me to, but she also wanted me to become professional (so I quit).

[TCO]

Originally posted by Boris Godunov


I'm sure if I did, KH would start talking about the mathematical relationships of harmonics or something like that.

A. He's heading to the gym.

B. Give it a shot.

C. He's not as annoying as Asher. Maybe not, ruin.

D. Ever read Stover at Yale and the charac ter of Brockigton? There is a v alid reason for the referenc e.