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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Knighty Tin who wrote (39704)8/25/2005 12:36:26 PM
From: Paul Kern  Read Replies (1) of 110194
 
KT,

We have a friend who is a well known mathematician and he claims that there are very few people who understand the derivatives and swaps that they buy/own/sell/trade. For the most part, they only see the returns and this is especially true of the custom, illiquid, two, three, or four party derivatives. Your average small hedge fund can't afford one of the small pool of people who design these instruments.

He readily admits to looking over some these instruments, that start with the basic Black/Scholes and then add several variables with different Deltas, and having no idea of who owes what to whom under various circumstances without a couple of days to build and backtest computer models.
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