Eugen Fama puts it: "Theoretically, derivatives increase the ran

http://physicsoffinance.blogspot.com/2011/06/dirty-little-derivatives-secrets.html

Dirty little derivatives secrets...

 

 

The first dirty little secret of the derivatives industry -- probably not so secret to those in the financial industry, but unknown to most others who still think financial markets in some approximation are fair and efficient -- is that some of the big banks control the market and expressly inhibit competition to protect their profits. I just stumbled across this still highly relevant exposition by the New York Times of efforts to place derivatives trading within properly defined clearinghouses, and the banks' countervailing efforts to gain control over those clearing houses so as to block competition.

The banks (invoking some questionable claims of economic theory) like to argue that derivatives make markets more efficient because they make them more "complete." As Eugen Fama puts it: "Theoretically, derivatives increase the range of bets people can make, and this should help to wipe out potential inefficiencies." Available information, the idea goes, should flow more readily into the market. But the truth seems to be that derivatives make banks more profitable at everyone's collective expense, and not only because they make markets more unstable (see more on this below). From the New York Times article:
Two years ago, Kenneth C. Griffin, owner of the giant hedge fund Citadel Group, which is based in Chicago, proposed open pricing for commonly traded derivatives, by quoting their prices electronically. Citadel oversees $11 billion in assets, so saving even a few percentage points in costs on each trade could add up to tens or even hundreds of millions of dollars a year.

But Mr. Griffin’s proposal for an electronic exchange quickly ran into opposition, and what happened is a window into how banks have fiercely fought competition and open pricing.

To get a transparent exchange going, Citadel offered the use of its technological prowess for a joint venture with the Chicago Mercantile Exchange, which is best-known as a trading outpost for contracts on commodities like coffee and cotton. The goal was to set up a clearinghouse as well as an electronic trading system that would display prices for credit default swaps.

Big banks that handle most derivatives trades, including Citadel’s, didn’t like Citadel’s idea. Electronic trading might connect customers directly with each other, cutting out the banks as middlemen.

The article goes on to describe a host of maneuvers that Goldman Sachs, JP Morgan and other big banks used to block this idea, or at least to make sure they'd be locked into the gears of such an electronic exchange. Eventually the whole idea fell apart to the banks' relief. Guess who's paying the price?
Mr. Griffin said last week that customers have so far paid the price for not yet having electronic trading. He puts the toll, by a rough estimate, in the tens of billions of dollars, saying that electronic trading would remove much of this “economic rent the dealers enjoy from a market that is so opaque.”

"It’s a stunning amount of money,” Mr. Griffin said. “The key players today in the derivatives market are very apprehensive about whether or not they will be winners or losers as we move towards more transparent, fairer markets, and since they’re not sure if they’ll be winners or losers, their basic instinct is to resist change.”
But there's another dirty little secret about the derivatives industry, and this goes back to the question of whether these instruments really do have benefits, by making markets more efficient, perhaps, or if instead they might make them more unstable and prone to collapse. Warren Buffet was certainly clear in his opinion, expressed in his newsletter (excerpts here) to Berkshire Hathaway shareholders back in 2002: "I view derivatives as time bombs, both for the parties that deal in them and the economic system." But the disconcerting truth about derivatives emerges in more certain terms from new, fundamental analyses of how precisely they can stir up natural market instabilities.

I'm thinking primarily of two bits of research -- one very recent and the other a few years old -- both of which should be known by anyone interested in the impact that derivatives have on markets. Derivatives can obviously let people hedge risks -- locking in affordable fuel for the winter months in advance, for example. But they're used for risk taking as much as hedging, and can easily create collective market instability. These two studies show -- from within the framework of economic theory itself -- that adding derivatives to markets in pursuit of the nirvana of market completeness should indeed make those market less stable, not more.

I'm currently working on a post (it's taking a little time) that will explore these works in more detail. I hope to get this up very shortly. Meanwhile, these two examples of science on the topic might be something to keep in mind as the banks try hard to confuse the issue and obscure what ought to be the real aim of financial reform -- to return he markets to their proper role as semi-stable systems providing funds for creative and valuable enterprise. Markets should be a public good, not a rigged casino, benefiting the few, and guaranteed by the public.
 " Jean-Philippe Bouchaud derivative market efficient".

 

所有跟帖: 

derivatives01 Eugen Fama derivatives increase the range of bets -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (7740 bytes) () 08/31/2011 postreply 16:27:08

check001 Lawrence G. McMillan 20-day historical volatility the m -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (47737 bytes) () 09/01/2011 postreply 15:49:52

emh01 http://www.eurojournals.com/irjfe_43_04.pdf -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (108 bytes) () 09/01/2011 postreply 16:02:12

emh01 information, not panic contributes to the price change -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (133869 bytes) () 09/01/2011 postreply 16:02:37

gr01 每一点的引力场是有一个相应的引力场强度,可用有一个与之相等的加速度(相对于静止的观察者)的局域的加速参考系,亦即是局域 -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (27920 bytes) () 09/01/2011 postreply 20:27:10

gr01 均匀引力场与加速系等效,惯性力与引力等效;在自由空间中没有必要引入局部惯性系的概念。但在非均匀引力场中,我们只能找到局 -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (184 bytes) () 09/01/2011 postreply 20:35:49

gr01 在加速参考系中, . 一般不能使用笛卡尔坐标系, 必须使用曲线坐标系来确定物理空间中点的位置 . 在非欧氏空间中由于几 -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (9715 bytes) () 09/01/2011 postreply 21:02:30

gr01 爱因斯坦发现,如果认为惯性质量和引力质量等效的话,那么,在引力场里面的惯性参照系,和非引力场作用下作加速运动的非惯性参 -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (110 bytes) () 09/01/2011 postreply 21:19:50

,“非对称”意味着封闭车厢观察者可以借力学等实验来确定该车厢的绝对运动,而绝对参考系的概念势必破坏惯性空间的均匀性和各向同性 -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (5520 bytes) () 09/01/2011 postreply 21:22:48

爱因斯坦的异议是说,不可积标度因子理论如果正确,那么从0出发的两条路径,由于标度的连续变化,一般将会有不同大小,因而两个钟快慢将 -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (17395 bytes) () 09/01/2011 postreply 21:35:36

量子力学描述的物质的存在方式,有四种,而不是经典物理的二种,量子力学的时空不是刚性的,也不是弹性的,而是离散的。空间和时间,也粒 -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (9043 bytes) () 09/02/2011 postreply 15:10:45

时空貌似光滑, 其实却不然。 当我们探索到比原子核还小 10000 亿亿倍的尺度 (被称为普朗克尺度) 上时, 时空也许会显示出 -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (78832 bytes) () 09/02/2011 postreply 15:21:15

矩阵力学。海森堡:定量的关系来代替玻尔定性的对应原理 -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (5337 bytes) () 09/02/2011 postreply 21:00:39

他把所有物理规则都按照矩阵形式书写,把已有的经典动力学方程和许多传统的物理量都按照矩阵数学来处理。在玻尔的量子化原子模型里,已经 -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (19917 bytes) () 09/02/2011 postreply 21:08:36

两个力学量对易就表明它们可以同时有准确的测量值,它们可以有共同的本征态,"若[F,G]=0,则[G,F]也为零。那么G的所有本征 -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (8037 bytes) () 09/02/2011 postreply 21:40:39

矩阵,本征值,本征向量,本征函数, - 量子力学,结构化学 -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (35659 bytes) () 09/03/2011 postreply 06:57:33

dδ2 是与时间无关的空间坐标的微分二次型, -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (5055 bytes) () 09/01/2011 postreply 21:40:06

量子化01 二次量子化—一个误解 -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (14289 bytes) () 09/05/2011 postreply 10:49:26

这里所说的矢量、 轴矢量、 标量、 赝标量都是依据时空变换性质区分的, 与那些量在 SU(2) 内禀空间内的变换性质无关 -marketreflections- 给 marketreflections 发送悄悄话 marketreflections 的博客首页 (24104 bytes) () 08/31/2011 postreply 21:17:46

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