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！

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

Taste on X'mas Day

Cropwell Bishop Blue Stilton Cheese serve with Chile Merlot / Shiraz red

Cropwell Bishop makes one of the most consistent award-winning Blue Stilton cheeses available. Each cheese is hand made by methods that have changed little since the 17th century ... more

Compass Behavior at the South Pole

What is the direction the compass would point at when it was used at the South Pole (the magnetic pole)?

Answer:

• There is no fixed pointing direction if the compass was holding flat. Every directions, in the line of great circle, will go through the North.
• It will point at the ground and sky when it was holding upright.

In the words of Physics, the behaviour can be explained by the fact that magnetic fields coming out from the poles are vertical. The compass needle does not interact with the fields which is perpendicular in direction. But if we hold up the compass vertical. Then the needle, in the plan of the fields, will turn to align with the lines of fields.

The South Magnetic Pole is not static. It constantly shifting due to changes in the Earth's magnetic field. As of 2005 it was calculated to lie at 64.53 S, 137.86 E, just off the coast of Wilkes Land, Antarctica. That point lies outside the Antarctic Circle. It is moving north west by about 10 to 15 kilometers per year.

PS: Study shows that the poles have flip-flopped many times over the past four billion years. On average, polarities of the poles swap every few 100,000 years. There have been a number of suggestions that the poles are going to swap within the next 1,000 years.

Ref:

1. http://www.newton.dep.anl.gov/askasci/gen99/gen99271.htm
2. http://simple.wikipedia.org/wiki/South_Pole
3. http://en.wikipedia.org/wiki/North_Magnetic_Pole#Polarity
   

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Words of Taste

Some ways to describe wines
Acid :
Piercing, Thin, lean, stringy, Crisp, Fresh, Soft, Flabby

Tannin :
Astringent, Chewy, Aggressive, Hard, Firm

Alcohol :
Light, Rich, Powerful

Favours :
Dry, Dull, Dusty, Focused, Blod, Complex, Tart, Ripe, Rounded, Oaky, Toasty

Composition :
Supple, Fat, Full, Big, Structured, Steely

• Aggressive - a wine with acid that makes your gums sting or that dries up the back of your throat due to excess of tannin.
• Astringent - a wine in which the mouth-drying effect of tannin is very marked.
• Big - a full-bodies wine with lots of everything: fruit, flavour, acid, tannin and alcohol.
• Blod - a wine with distinct, easily understood flavours.
• Chewy - wine with a lot of tannin and strong flavour, but which is not aggressive.
• Complex - a wine that has layer upon layer of flavours.
• Crisp - a refreshing white with good acidity.
• Dry - not at all sweet
• Dull - a wine with no well-defined pleasing flavours. Often a sign of too much expousure to oxygen.
• Dusty - a dry, slightly earthy taste sometimes found in reds. Can be very attractive if combined with good fruit.
• Fat - full-bodied, unctuous
• Firm - well-balanced, well-defined wine; the opposite of flabby.
• Flabby - lacking in acidity, feeble
• Focused - a wine in which all the flavours are well defined.
• Fresh - young wine, with lively fruit flavours and good acidity.
• Full - a wine with a weighty feel in the mouth.
• Green - can mean unrip. But green leaf flavours are common in cool-climate reds, and greenness in association with flavours such as gooseberries or apples, imples the fresh, tangy flavours found in some white wines.
• Hard - a red with a lot of tannin or a white with too much acid, but uncompromising rather than aggressive. One step beyond firm.
• Light - low alcohol or little body
• Oaky - slightly sweet vanilla flavour, the toastiness and the butteriness a wine acquires from new oak barrels.
• Piercing - usually refers to high acidity. But fruit flavours can also be piercing if they are particularly vibrant.
• Powerful - a wine with plenty of everything, particularly alcohol.
• Rich - full, well-flavoured, with plenty of alcohol.
• Ripe - wine made from well-ripened grapes has good fruit flavour.
• Rounded - any wine in which the flavour seems satisfyingly completed, with no unpleasant sharpness.
• Soft - a wine without harsh tannins or too much acidity, making it an easy-going drink.
• Steely - good acidity and a wine that is firm and lean but not thin.
• Structured - Plenty of structure refers to a wine with a well-developed backbone of acid and tennin, but enough fruit to stand up to it.
• Supple - both vigorous and smooth. A description of texture rather than flavour.
• Tart - a very sharp, acid taste like an unripe apple.
• Thin, lean, stringy - terms for high-acid wine lacking in flavour.
• Toasty - a flavour like buttered toast that results from maturing a wine in oak barrels.

All About Wines

Building Blocks of Wine

Tannin

It is the stuff in red wines that stains the teeth and dries the month. It is also the flavour and texture of the wine. Tannin comes from the skin, stems and pips of the grape. So white wines don't have noticeable levels of tannie. Both tannie and acid act as preservatives can keep wines in bottle for years.

Acid and Sugar

Both are present in the juice of grape. Most of the sugar is turned into alcohol during fermentation, but some remain. Right proportion of acid makes the wine intense and refreshing.

Alcohol

It balances other flavours, for example softening the attack of the acid, and contributes to the intensity of the experience of the wine in the mouth.

(OZ Clarke's - Introducing Wine)

Red Wine Wheel

Black fruits
Blackcurrant, blackberry, dark plum and black cherry flavours.
Grapes: Cabernet Sauvignon (Bordeaux is its homeland), Merlot (Chile's is good).

Red fruits
Soft flavours of strawberries and raspberries and sharper hints of redcurrants and red cherries.
Grapes: Point Noir

Herbs/spices
Wild flavours of herbs; peppery and aromatic spices; tastes such as chocolate or liquorice.
Grapes: Syrah(France) or Shiraz(Australia)

Styles of wines

Silky, strawberryish reds - RED FRUITS. Beyond Burgundy in France, the best Point Noir comes from California and New Zealand.
Food: red meat in rich sauce, roast or grilled red meats.

Intense, blackcurranty reds - BLACK FRUITS, maybe with a touch of RED FRUITS or HERBS/SPICES.
Food: roast or grilled red meats - especially lamb, duck and goose.

Juicy, fruity reds - RED or BLACK fruits, with light to medium intensity. This style has its birth in the New World and Chilean Merlot is the benchmark. The best wines are in the age of two years old.
Food: roast or grilled red meats, roast or fried chicken.

Spicy, warm-hearted reds - HERBS/SPICES, many combines this with RED FRUITS or BLACK FRUITS. Australian Shiraz is the wine to try.
Food: peppered steak, warming herby stews.

Mouthwatering, sweet-sour reds - RED FRUITS and HERBS/SPICES. Almost all hail from Italy and have a character that is distinctly different from international mob.
Food: Pizza and tomato-based dishes, (tannic) rich game dishes and roast or grilled red meats.

White Wine Wheel

Oaky
Wines with the toasty, buttery flavours that come from oak barrels.
Grapes: Chardonnay, Semillon (Bordeaux and Australia).

Fruity
Peachy, tropical fruit or honeyish flavours without the buttery overlay of oak.
Grapes: Chardonnay

Crisp
Fresh, clean flaovours with a bite, like lime, goosberry or green apples.
Grapes: Sauvignon Blanc (New Zealand).

Aromatic
Wines with intense floral or exotic fragrances such as lychees and rose petals.
Grapes: Gewurztraminer

Styles of wines

Intense, nutty whites - OAKY wines; the best are intense but subtle. Top-quality oaked-aged Graves and Pessac-Leognan from Bordeaux are Semillon blended with Sauvignon Blanc.
Food: creamy and buttery sauces, plain grilled white fish.

Ripe, toasty whites - full of OAKY and FRUITY flavours. The style was virtually invented in Australia, but it is also the hallmark of most Chardonnay in the USA and South America.
Food: grilled or baked salmon and tuna, creamy and buttery sauces.

Bone-dry, natural whites - the lightest wines in the CRISP zone. Won't find this stlye in the New World. Muscadet from the Loire Valley is the most neutral of the lot. Unoaked Chablis from Burgundy is the adaptable Chardonnay grape in a dry, minerally style.
Food: plainly cooked fish and shellfish, grilled chicken breasts.

Green, tangy whites - CRISP wines, but shading into FRUITY and into AROMATIC styles. Sauvignon Blanc from New Zealand has tangy, mouthwarming flavours by the bucketful. Chile makes similar. The Loire also produces sharp-edged wines from Chenin Blanc.
Food: anything in tomato sauce, including shellfish, pizza, sushi.

Aromatics - they are AROMATIC zone, some are OAKY too. The best is by Gewurztraminer from Alsace. It packed solid with roses and lychees, face cream and a whole spice cupboard. It is wonderful drink with the Chinese spicy food.
Food: Thai and Chines food, smoked fish, pork.