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Arbitrage and the Risk

Talking about Arbitrage – drama film directed by Nicholas Jarecki and starring Richard Gere. A troubled hedge fund magnate blogdesperate to complete the sale of his trading empire makes an error that forces him to turn to an unlikely person for help.

It is well-known that risk arbitrageur play an important role in the market for corporate control. After a tender offer, the trading volume increases dramatically in large part because of risk arbitrageurs activity. They take long positions in the target stock, in the hope that the takeover will go through. They are also usually hedged by taking short positions in the acquirer’s stock.

Risk arbitrage used to be a very inconspicuous activity, but in mid-70s, the emergence of Ivan Boesky and the increasing volume of corporate takeover deals contributed to make it more visible. Attracted by the high rewards, many firms started new arbitrage departments and more people became involved in this activity. View full article »

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I am a big fan of Traders Guns and Money the book written by Satyajit Das, the definitions Knowns and Unknowns revealed by himblog is the classic work.  The reality is always to make sure that you have a seat when the music in this game of musical chairs for high stakes stops (referring to the examples for the crisis happened in the past). As a result of it some interesting statements the management of the firms make but the intensity is something to thought about:-

Statement: As a Leading dealer with a global platform, we are the major player in the market.

  • Translation: We have spent a fortune to build this business and are now prepared to spend millions more subsidizing your requirements.

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It’s amazing to see the enthusiasm people towards stock markets these days. Although there is trouble in Iraq that is impacting the blogprices of the crude oil. Indian Railways revising the fares and the inflation do not look good. But the world is still bullish on the Indian markets; even the domestic investors are aggressively greedy on the markets.

Some of these points will help you to check your portfolio health ;)

  • Saying “I’ll be greedy when others are fearful” is much easier than actually doing it.
  • The gulf between a great company and a great investment can be extraordinary.
  • Not a single person in the world knows what the market will do in the short run. End of story.
  • The analyst who talks about his mistakes is the guy you want to listen to. Avoid the guy who doesn’t — his are much bigger.
  • You don’t understand a big bank’s balance sheet. The people running the place and their accountants don’t, either.

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“The point is, ladies and gentleman, that greed, for lack of a better word, is good.” – Gordon Gekkoblog

“Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.” – Warren Buffett

Greed may have been good for Gordon Gekko (at least for a while), but in the investment world it rarely is as Warren Buffett is famous for saying.

Investors are unequivocally greedy today, and with some perspective it is hard to blame them.  After all, stocks are at all-time highs are they ? View full article »

Size is too simple a metric… It really doesn’t matter from a systemic point of view whether you have four banks or forty banks in a blogmarket. It’s the system’s asset concentration – principally in government debt and in mortgage debt – that can be dangerous.”

Sometimes it’s always good to keep brushing yourself, thought of sharing some important glossary on the OTC Market as I was refreshing self on last night:

  • Back loading: The action of clearing already existing bilateral OTC derivatives positions.
  • Collateral management : Typically, two parties enter into an OTC transaction under an Agreement (ISDA framework mainly) that specifies the contractual relationship between the two parties. As part of this Agreement, a specific document (Credit Support Annex/Deed under the ISDA framework) stipulates that some collateral will be exchanged between them to mitigate counterparty risk. Collateral, in the form of cash or securities, is mainly exchanged on the basis of the variation in the value of the exposure between the parties (value of all OTC contracts under the Agreement). This is often referred to as Variation Margin. In addition, Independent Amounts can be requested by one of the parties.

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