Chasing Returns I've spent much of this long weekend curled up on the couch reading Too Big To Fail, Andrew Ross Sorkin's history of the financial crisis of 2008. I've wanted to read this book since it came out last year but it took me a while to get to it. I'm enjoying it very much. As I read about bank after bank waking up and smelling the coffee too late, I am reminded of the risks of chasing returns. In the case of the financial crisis of 2008, the banks were chasing returns in the mortgage markets and the related markets for CDOs and other exotic derivatives.
I’ve been trying to figure out how to share with you, O Dearly Beloved, just why it is that the current snowballing trend of reducing working hours for junior bankers in my industry1 is so wrongheaded. Clearly, I am swimming against the tide here, as now Credit Suisse and Bank of America have joined the political correctness police at Goldman Sachs and J.P. Morgan to dissuade our nubile young apprentices from their traditional practice of working hours that would make a Southern slave overseer of the 1860s blush. The unwashed commentariat continues to flog the canard that investment banks are doing this so they can compete against the innopreneurial juggernauts of Silicon Valley for all the special young snowflakes of Dartmouth, Yale, and Oxbridge. Perhaps there is a contingent among the benighted paper pushers of investment bank human resources departments who believe this too, but I have attacked this superficial notion thoroughly and, in my opinion, effectively in the past. The Epicurean Dealmaker
Stock returns however exhibit nonormal skewness and kurtosis as pointed out by Hull (1993) and Nattenburg (1994). Moreover, the volatility skews are a consequence of the empirical normality assumption violation. For this reason, Corrado and Su (1996) extend the Black-Scholes formula to account for nonnormal skewness and kurtosis in stock returns. This package calculates the European put and call option prices using the Corrado and Su (1996) model. Quantitative Finance Collector
Analytical Finance - by Jan Röman
Stock Market News, Opinion & Analysis, Investing Ideas -