My principal contribution to the Black-Scholes option-pricing theory was to show that the dynamic trading strategy prescribed by Black and Scholes to offset the risk exposure of an option would provide a perfect hedge in the limit of continuous trading.
Credit default swap gives you something to do. You can buy some credit default swaps from them to protect yourself against the bankruptcy of people who owe you money.
I don't really like hedging. To me, if something needs to be hedged, you shouldn't have a position in it.
The single greatest line I ever wrote as an analyst was after Lomas said they were hedged: 'The Lomas Financial Corporation is a perfectly hedged financial institution: it loses money in every conceivable interest rate environment.' I enjoyed writing that sentence more than any sentence I ever wrote.
I think that it would be a mistake for any institution to think that their stake in a default or in a voluntary accord is determined by the amount of their exposure, hedged or unhedged.
Always hedge your bets. That's how I do it. I lay all my bets on what I can contribute, and suffer no illusions that I'm generating stuff by myself.
So, in a way I was hedging and saying that if the Olympic stuff doesn't work out at least I can be a lawyer.
Oil futures were originally created to give heating oil dealers, gas retailers, aviation companies and other businesses a method of hedging against adverse price changes. Instead, they've become just another Wall Street plaything.
A credit default swap was confusing mainly because it wasn't really a swap at all. It was an insurance policy, typically on a corporate bond, with semiannual premium payments and a fixed term.
Greece bankruptcy will trigger a market crash. My advice: Buy Bitcoin & Gold Both will rise when the markets crash.
If you pay attention to where your exposures are, you might tend up buying credit default swaps against a variety of people that you - companies that you deal with.
