To: Frank A. Coluccio who wrote (31582 ) 10/5/2009 1:19:10 PM From: axial Read Replies (1) | Respond to Actually, I think that's very reasonable. '“Now it’s an arms race,” said Andrew Lo, director of the Massachusetts Institute of Technology’s Laboratory for Financial Engineering. “Everyone is building more sophisticated algorithms, and the more competition exists, the smaller the profits.”' en.wikipedia.org "Dispersion desks can handle significant volatility risks in the same way that a basket desk can handle extremely large deltas per instrument or a cap/floor vs. swaption trader can handle extremely large volatility risks per underlying. As a matter of fact, a dispersion trader is essentially a cap/floor vs. swaptions trader, albeit somewhat less structured. Dispersion traders can come into a single stock and sometimes sell signifcant vegas (read: millions) before anyone knows what is happening ." 'Dispersion allows for the mixing of index (basket) volatility and constituent member volatility. It’s a fairly complex trade where a single book can consist of hundreds (thousands) of positions. For this reason, one needs to have a certain amount of back-office and risk management capability to make it worth one’s while. Also it helps to have decent access to (internal) market makers, as trying to profit from dispersion as a market taker where you are giving up one or two percent in annualized dispersion terms is hard.' nuclearphynance.com
