This short film made with Seedance 2.0 is absolutely insane.The realism looks like a real movie — no one can…
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The smile in Black and Scholes
This is a bit of a detective story, a bit of a puzzle. The method is archaeological.
This morning a colleague of mine sends me an e-mail entitled “importance of correlations.” There are several attachments. One of them is an article by Don Chance entitled “Rethinking Implied Volatility” (*). In it, the author writes the following about the Black-Scholes model for pricing financial options:“As we said earlier, the Black-Scholes model produces implied volatilities of traded options that can vary by exercise price for a given underlying asset. How should we respond to such a finding? First, we could…
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The miracle that never was
I was driving along the Pacific Coast Highway on the morning lap of my daily commute and was listening to the classical music program broadcast from the University of South California and I was thinking to myself “This is great, this is what we like to hear on a classical music station: something different. What is this ? A piece by Béla Bartok unknown to me? Or is it perhaps a later twentieth century composition? That beat, like with the Ghanaian tom-tom from my adventurous days; the beat that Trance music (130 to 160 beats per minute) has put to…
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California salivating
What we did last Saturday was a bit over the top: we drove 200 miles to have dinner. We’re bound to have eaten too little on Friday night as we woke up the following morning wondering where to have dinner. We ruled out our default solution, the zero degree of our imagination, Gladstone’s in Pacific Palisades (1): it’s close, it’s simple, it’s good and it has the beachy atmosphere. But I guess we wanted to move away from that zero degree. For just one second we envisaged two of our other favorite hang-outs before pushing them aside for being too…
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The Greenspan and Kennedy papers on Equity Extraction from Housing (1990-2006) – A graphic exposition
The first Greenspan and Kennedy paper (*), published in 2005 provides figures about equity extraction in the US over the 1990 to 2005 period. In the first diagram, the numbers for cash-out extracted at the occasion of refinancing are shown along origination of Home Equity Loans and Lines of Credit. There is no essential difference of course between the two about the way equity is extracted: in both cases the home is used as collateral: cash-out raises the amount of the mortgage, the so-called “first lien” on the house while Home Equity Loans and Lines of Credit establish a “second…
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Please keep quiet Mr. Greenspan!
Poor Mr. Greenspan: can’t open his mouth without giving investors the heebie-jeebies!
He promised he would be quiet, just like his predecessor Mr. Volcker was about monetary policy when he himself took over. Even when he only whispers, people pay a lot, a lot of attention, and go into a frenzy of wanting to sell this or buy that. Hear him protest: “What I do talk about are the global forces that are functioning, how the world is running and how the economy is developing, in a manner that I used to do when I was an economic consultant.…
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Subprime, CDOs and the threat to home ownership
In a well-documented recent paper (*), Joseph R. Mason of Drexel University and Joshua Rosner of Graham Fisher & Co. ask if a chain of events has not begun unfolding that will end up in a situation where funding for the mortgage industry is massively curtailed. In their paper, Mason and Rosner draw a parallel between the role played presently by subprime loans within Collateralized Debt Obligations (CDOs) and a situation that arose in 2003 leading to the demise of the main collateral types used in those days to enhance CDO credit. These sectors were: manufactured housing, aircraft leases, franchise…
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An experiment in Wikiology
I marvel at Wikipedia. There is hardly a day when I don’t go and check their site, looking up some concept, often mathematical, sometimes financial, or finding out about any other question I happen to be asking myself, about Joachim Pateniers or the bodhisattva.
In the beginning, I would only fix the typos I was coming across. Until one fateful day I got so frustrated that there was no entry for “amortizing loan” that I chose to write it up myself. The dynamics of that collective project appeal to me. I remember a science-fiction story about planet Earth being threatened…
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Beijing’s Food Palace
The girl who was taking us to the opera asked where we intended to have dinner and we told her we would be going for the third time in a row to the Golden Tripod Attic. There was some sneer in her voice when she said “But that’s a normal place!” And she was right: the Golden Tripod Attic is a “normal” Beijing place, nothing like the fancy schmantzy Qianmen Quanjude Roast Duck Restaurant where we had some fun eating the all-duck set menu – despite the European couple at the neighboring table keeping a permanently lit cigarette close at…
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Where did the housing bubble come from?
In today’s Wall Street Journal, Andy Laperrière, a managing director of the Washington office of the ISI Group, wrote a piece on the crisis in the mortgage industry, I wrote to the Journal’s editor, the following letter:
In his “Mortgage Meltdown” (Wall Street Journal, March 21, 2007), Andy Laperrière assigns the residential real estate bubble to the boost to home prices that the subprime market has provided “at the margin.” By that he ignores that housing is segmented and although easier access to the lower part of the market has no doubt contributed at raising prices at that particular end…
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Malaise in the subprime sector
In today’s Wall Street Journal, Alex J. Pollock a former President and Chief Executive Officer of the Federal Home Loan Bank of Chicago wrote a piece on the subprime industry, I wrote to the Journal’s editor, the following letter:
“In his “Credit Crack-Up” (March 12, 2007), Alex J. Pollock offers a perceptive summary of the current malaise in the subprime mortgage industry. Some of his comments however call for qualification.
1. The risk of “punishing of the innocent along with the guilty”
Some segment of the subprime industry falls unfortunately under the category of “predatory lending” where the lender…
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