《莊子·內篇·養生主第三》
庖丁釋刀對曰：「臣之所好者道也，進乎技矣。始臣之解牛之時，所見無非全牛者﹔三年之后，未嘗見全牛也﹔方今之時，臣以神遇而不以目視，官知止而神欲行。依乎天理，批大卻，導大窾，因其固然。技經肯綮之未嘗微礙，而況大軱乎！良庖歲更刀，割也﹔族庖月更刀，折也﹔今臣之刀十九年矣，所解數千牛矣，而刀刃若新發於硎。彼節者有閒，而刀刃者無厚，以無厚入有閒，恢恢乎其於游刃必有餘地矣。是以十九年而刀刃若新發於硎。雖然每至於族，吾見其難為，怵然為戒，視為止，行為遲，動刀甚微，謋然已解，牛不知其死也，如土委地。提刀而立，為之而四顧，為之躊躇滿志，善刀而藏之。」
文惠君曰：「善哉！吾聞庖丁之言，得養生焉。」
Thursday, January 31, 2008
Friday, January 25, 2008
人情物理 - 逍遙游
《莊子 · 內篇 · 逍遙游第一》
瞽者無以與乎文章之觀，聾者無以與乎鐘鼓之聲。豈唯形骸有聾盲哉？夫知亦有之。是其言也，猶時女也。之人也，之德也，將磅礡萬物以為一，世蘄乎亂，敦幣幣焉以天下為事！之人也，物莫之傷，大浸稽天而不溺，大旱金石流、土山焦而不熱。是其塵垢枇糠，將猶陶鑄堯舜者也，孰肯以物為事！
瞽者無以與乎文章之觀，聾者無以與乎鐘鼓之聲。豈唯形骸有聾盲哉？夫知亦有之。是其言也，猶時女也。之人也，之德也，將磅礡萬物以為一，世蘄乎亂，敦幣幣焉以天下為事！之人也，物莫之傷，大浸稽天而不溺，大旱金石流、土山焦而不熱。是其塵垢枇糠，將猶陶鑄堯舜者也，孰肯以物為事！
Thursday, January 24, 2008
Synthetic Positions
What shall we do to protect our cash position when the interest rate is falling?
Protective Put + Buying Volatility ??
= Synthetic long call + Long straddle
= Long bond + (long put + long call)
Risks
Major: yield curve, volatility, market, liquidity.
Minor: credit, FX, model
Interest Rate Speculation
Strategy implications of the use of options (Naked Option Positions)
Use synthetic securities to enhance yield - synthetic option positions are constructed by combining a position in a bond with a position in an option. Similarly, combination of two positions in options are synthetic bond positions.
Hedging Price Risk (cash position in bond portfolio)
Strategy implications of the use of options (Covered Option Positions)
Covered call (synthetic: short put) - sell an out-of-the-money call option on an existing (long) bond portfolio. It provides partial protection if interest rate increase. Used when volatility is expectingly low.
Protective put (synthetic: long call) - buy an out-of-the-money put option on an existing (long) bond portfolio. The options hedge protects the investor if interest rate rise but unlike hedging with futures it allows the investor to profit if rates fall (buyer of option has the right but not the obligation to perform). Used when volatility is expectingly high.
Trading Volatility
At-the-money call options are the most common measure of implied volatility (market's belief about future volatility). Assume the option is priced correctly, we use the Black-Scholes option-price model to estimate the volatility implied by the model. For example, if the implied volatility is 10% when the investor expects interest rate volatility to be 8% over the life of the option, the option is considered undervalued. One can buy/sell volatility through the simultaneous purchase/sale of call and put options (known as straddle or triangle), where the options are based on the same security and have the same strike price and expiration.
A better way of valuing options on bond should take into account the yield curve as well different volatility assumptions along the curve. The most popular model employed by dealer firms is Black-Derman-Toy model.
Sources of return and risk
Protective Put + Buying Volatility ??
= Synthetic long call + Long straddle
= Long bond + (long put + long call)
Risks
Major: yield curve, volatility, market, liquidity.
Minor: credit, FX, model
Interest Rate Speculation
Strategy implications of the use of options (Naked Option Positions)
Hedging Price Risk (cash position in bond portfolio)
Strategy implications of the use of options (Covered Option Positions)
Covered call (synthetic: short put) - sell an out-of-the-money call option on an existing (long) bond portfolio. It provides partial protection if interest rate increase. Used when volatility is expectingly low.
Protective put (synthetic: long call) - buy an out-of-the-money put option on an existing (long) bond portfolio. The options hedge protects the investor if interest rate rise but unlike hedging with futures it allows the investor to profit if rates fall (buyer of option has the right but not the obligation to perform). Used when volatility is expectingly high.
Trading Volatility
At-the-money call options are the most common measure of implied volatility (market's belief about future volatility). Assume the option is priced correctly, we use the Black-Scholes option-price model to estimate the volatility implied by the model. For example, if the implied volatility is 10% when the investor expects interest rate volatility to be 8% over the life of the option, the option is considered undervalued. One can buy/sell volatility through the simultaneous purchase/sale of call and put options (known as straddle or triangle), where the options are based on the same security and have the same strike price and expiration.
A better way of valuing options on bond should take into account the yield curve as well different volatility assumptions along the curve. The most popular model employed by dealer firms is Black-Derman-Toy model.
Sources of return and risk
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