Market volatility tends to fade and spike over time. Sharp corrections in financial markets occur more frequently than predicted by statistical theory. How do we explain these phenomena? It seems to me that as a broad rule, and in particular where risk management is based on Value at Risk, that leverage is a function of

The SEC alleges that: GS failed to disclose that Paulson was involved in the portfolio construction of ABACUS 2007-AC1. GS misrepresented to ACA that Paulson was 200m long in the equity of ABACUS 2007-AC1. GS entered into CDS with Paulson that allowed Paulson to buy protection on tranches of ABACUS 2007-AC1s’ capital structure but did

Mr P wishes to place a bet that a certain football club will lose a match. He goes to his local bookie.     I want to bet that Club X will lose their next match, he says. Sure, says his bookie, let me see if I can find someone to take that bet. The

Is investing a zero or constant sum game? In derivative markets, FX, commodities, the game is trivially constant sum. In equities there is some debate. Some claim that ownership of equity is a claim on future cash flows and is therefore not a zero sum game. The value of equity is therefore sensitive to growth

Darling’s budget is not only a mistake from an economic point of view, it is a strategic mistake politically. 1. Cut taxes. Sounds crazy but consider that labour and capital mobility has increased since the mid 80’s. A country is producing a product called Domicile, the price of which is Taxation. Today, demand for Domicile