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Alex Bilzerian
RT @RDouady: Thank you, Alex, for posting this paper.
It was an answer to questions from Riskdata's clients on whether to use "normal" or "lognormal" (so-called "market model") models for interest rates.
Quants, especially on the sell-side for option pricing, tend to select models purely on their capabilities: "Do they handle negative rates?" Indeed, the question arose after 2008 crisis, when rates fell to almost 0, and at times, passed the negative barrier. How to price a floor at 0% with a "market model"?
They just forgot that a model is supposed to reflect the reality of some behavior. As such, they must respect certain stylized facts of the statistics of underlying.
The question is not so much "do we allow negative rates". Of course, we have no choice, rates do become negative, and we must be able to price a 0% floor. But then, what happens when they rise back?
It wasn't by chance that lognormal models were called "market model". So, I went on checking the relationship between the level of rates and their volatility to see what the most appropriate model was.
The conclusion is just what we could have expected: for low rates (even slightly negative), a normal model is better, but as soon as they pass a certain level of a few percents on the positive side, the volatility becomes proportional to the rate level (even more so for credit spreads, by the way).
This is why I propose a simple remedy using a shifted zero, i.e. a lognormal model in which the volatility is proportional to the rate + a margin to handle negative rates up to minus the margin.
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RT @RDouady: Thank you, Alex, for posting this paper.
It was an answer to questions from Riskdata's clients on whether to use "normal" or "lognormal" (so-called "market model") models for interest rates.
Quants, especially on the sell-side for option pricing, tend to select models purely on their capabilities: "Do they handle negative rates?" Indeed, the question arose after 2008 crisis, when rates fell to almost 0, and at times, passed the negative barrier. How to price a floor at 0% with a "market model"?
They just forgot that a model is supposed to reflect the reality of some behavior. As such, they must respect certain stylized facts of the statistics of underlying.
The question is not so much "do we allow negative rates". Of course, we have no choice, rates do become negative, and we must be able to price a 0% floor. But then, what happens when they rise back?
It wasn't by chance that lognormal models were called "market model". So, I went on checking the relationship between the level of rates and their volatility to see what the most appropriate model was.
The conclusion is just what we could have expected: for low rates (even slightly negative), a normal model is better, but as soon as they pass a certain level of a few percents on the positive side, the volatility becomes proportional to the rate level (even more so for credit spreads, by the way).
This is why I propose a simple remedy using a shifted zero, i.e. a lognormal model in which the volatility is proportional to the rate + a margin to handle negative rates up to minus the margin.
'The Volatility of Low Rates' - @RDouady (2013, PDF):
https://t.co/uYzm106fOT tweet
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Librarian Capital
It's been ~1 year since Diageo's $DGE Scotch day*
Scotch had value CAGR of ~5% in 2016-21, ahead of TBA
Since then Diageo had reported Scotch organic net sales of +29% in FY22, +12% in FY23, -10% in FY24
* Jun-23; section on LAC growth was unfortunate given later events https://t.co/6JNFTxEDak
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It's been ~1 year since Diageo's $DGE Scotch day*
Scotch had value CAGR of ~5% in 2016-21, ahead of TBA
Since then Diageo had reported Scotch organic net sales of +29% in FY22, +12% in FY23, -10% in FY24
* Jun-23; section on LAC growth was unfortunate given later events https://t.co/6JNFTxEDak
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Stock Analysis Compilation
Hedge funds' best ideas #12 is in your inbox 🔥
(link below)
Artemis / Artisan Partners / Bilbel Capital / Harding Loevner / Harris Associates / Hayden Capital / Horizon Kinetics / Impact AM / Langdon / Madison Funds / Marlton Partners / Orbis / Patient Capital Management / Pender Fund / Perritt Capital / River Oaks Capital / Rowan Street / RS Investments / Silver Beech / Southernsun / The London Company
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Hedge funds' best ideas #12 is in your inbox 🔥
(link below)
Artemis / Artisan Partners / Bilbel Capital / Harding Loevner / Harris Associates / Hayden Capital / Horizon Kinetics / Impact AM / Langdon / Madison Funds / Marlton Partners / Orbis / Patient Capital Management / Pender Fund / Perritt Capital / River Oaks Capital / Rowan Street / RS Investments / Silver Beech / Southernsun / The London Company
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Quiver Quantitative
BREAKING: Representative Michael Burgess has sold up to $100K of Illumina stock, $ILMN, this month.
Illumina is a biotech company.
Burgess is a former doctor, and sits on a House Subcommittee on Health. https://t.co/rjTZcxBfPr
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BREAKING: Representative Michael Burgess has sold up to $100K of Illumina stock, $ILMN, this month.
Illumina is a biotech company.
Burgess is a former doctor, and sits on a House Subcommittee on Health. https://t.co/rjTZcxBfPr
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Librarian Capital
Diageo $DGE has been long-time holding at Lindsell Train; also at Fundsmith until they sold in Aug-24
During COVID, EPS c. halved in FY20, before rebounding from FY21 onwards
EPS was 130.1p in FY19, peaked at 164.4p in FY23
Shares at 4,036p at 2021YE, 31x FY19 EPS
#NeverSell? https://t.co/7nR7kseniG
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Diageo $DGE has been long-time holding at Lindsell Train; also at Fundsmith until they sold in Aug-24
During COVID, EPS c. halved in FY20, before rebounding from FY21 onwards
EPS was 130.1p in FY19, peaked at 164.4p in FY23
Shares at 4,036p at 2021YE, 31x FY19 EPS
#NeverSell? https://t.co/7nR7kseniG
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Capital Employed
We're big fans of Tony Deden.
He doesn't do many interviews so this was a rare treat and a great conversation with him and @iancassel
Well worth a read... 👇
https://t.co/tKIg1jRuvG
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We're big fans of Tony Deden.
He doesn't do many interviews so this was a rare treat and a great conversation with him and @iancassel
Well worth a read... 👇
https://t.co/tKIg1jRuvG
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Ahmad Jivraj
tech pricing = deflationary
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tech pricing = deflationary
If you add the current 4o-mini pricing to the chart, the drop in token pricing is 99.7% over last 18 months!
For everyone nervous about the real-time audio pricing being ~$120 / 1m tokens, take comfort in the below chart. This price will undoubtedly come down significantly! https://t.co/gmti8XHVHu tweet