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Archive for November 13th, 2008

Risk Neutral Valuation: There Are at Least Two Expected Values

Andy Spero | November 13, 2008 | 0 Comment(s) |

But You’ll Never Know the One

We also have a newer post, Price Implied Default Rates, that provides an example more like a risky bond, and this one: Multi-period Bond Price Implied Default Rates and CDS. And we’ll have more related posts soon.

We’ve noticed that our few posts on risk neutral probabilities and implied default probabilities have been among our most popular content for readers throughout the world.  (And it is cool to write “throughout the world.”)

So, we’ve finally starting composing a longer essay to cover continuous density functions, but an earlier… Read the rest

Did you MEAN the MEDIAN?

Andy Spero | November 13, 2008 | 0 Comment(s) |

This a small point, but the pedant in us isn’t above it.

Yesterday’s (November 12) Wall Street Journal contained an opinion column, Is Now the Time to Buy Stocks? by John H. Cochrane, a finance prof at the University of Chicago.  Rather than comment on his data-mining exercise, we’d rather repeat his qualification that “History is not a guarantee–this time it could be different.”  This, of course, is the Problem of Induction or at least nonstationarity and is something we’ve written about in many posts.

In those posts, we’ve often… Read the rest

The Failure of Boards to Direct

Andy Spero | November 13, 2008 | 0 Comment(s) |

Analogously: The Gangs That Can’t Shoot Straight

Last week in The Understatement of the Year! we wrote, “The problem, dear reader, is that few senior managers (and almost no board members) understand the valuation and risk models used for securitizations…”

Today, there is an article in The Wall Street Journal, Citi Directors Mull Replacing Chairman, that provides additional evidence to support our claim.

To be frank, unless it is we, we don’t really care who Citi selects as a chairman, and we doubt that you do, also.

We’re… Read the rest