Volatility skew didn’t exist before the 1987 market crash. Before then, the assumptions of the Black-Scholes option pricing model were felt to be about right. Constant volatility, continuously tradeable instruments with no discontinuities in prices, independent returns from one period to the next. Then the market crashed downwards exhibiting leptokurtic, negatively skewed returns and large…
Paul Krugman debates Ron Paul on live TV. Ill-advised or not, it is interesting to see their different takes go head to head. I’m not sure either really puts their points across very well, but I was a little surprised to see the vitriol in the comments of the YouTube video against Paul Krugman. Ron…
For every complex problem, there is a solution that is clear, simple and wrong. Greece is a complex problem. Paul Krugman points to this Choose Your Own Adventure on the Greek crisis. Much like the original books, there are many, many nasty ends. Read it, try it, explore a few paths. This is the best…
Greece is the canary. Europe is the coal mine. One voice calling it yellow and black.
Fitch downgrades outlook for South Africa to “negative”. Ferial Haffajee highlights a difference in reasons given by Treasury (blame the international economy) and Fitch (unemployment).
The BBC has a great overview of competing European interests, demonstrating exactly how far they are from a deal. In my mind, this is half of the reason markets are going to punish European bonds soon. The other half is that the proposed deal is rubbish. It doesn’t fix the causes but tries to ban…
Best practice for matching non-profit annuities in most countries, certainly from a risk perspective, is still to cash flow match (or at the very least, match key durations) using government bonds. The theory is that the insurer isn’t then exposed to changes in the term structure on interest rates, only exposed to illiqudity/reinvestment risk to…
Italy’s yields are heading towards 8%, which is about the same as South Africa. And South African inflation is flirting with 6% while Eurozone inflation is looking more like 1%. Europe is in serious trouble and very few South Africans have yet woken up to exactly how serious this trouble is. [update: intrade betting has it…
