Category Archives: The Rules

Post 2500: What is the Aleph Blog About?

Every hundred or so posts, I take a step back, and try to think about broader issues about blogging about finance.  Tonight, I want to explain to new readers what the Aleph Blog is about. There have been many new followers added to my blog recently,  through e-mail, RSS, and natively.  This is because of […]

The Rules, Part LXI (The End… of the Past)

Rule: every rule has exceptions, including this one In the long-run, and with hindsight, most actions of the market make sense.  Sadly, we live in the short run, and our lives may only see one to 1.5 full macro-cycles of the market in our lives.  We live in a haze, and wonder what useful economic […]

The Rules, Part LX

Rapid upward moves in volatility almost always presage a bounce rally. Again, I am scraping the bottom of the barrel, but this is a common aspect of markets.  When things get tough, scaredy-cats buy put options.  That pushes up option implied volatilities.  The same doesn’t happen when prices are rising, because that happens slower.  Prices […]

The Rules, Part LVIII

Can contingent claims theory for bond defaults be done on a cash flow/liquidity basis?  KMV-type models seem to fail on severely distressed bonds that have time to breathe and repair. We’re getting close to the end of this series, and I am scraping the bottom of the barrel.  As with most aspects of life, the […]

The Rules, Part LVII

The more that markets are united through derivatives, the more systemic risk is created. Derivatives exist to subvert regulations, at least the regulations that don’t involve derivatives.  Ideally, derivatives allow those that want to take on a given risk, to have the ability to do so.  And the same for laying off risk. But here’s […]

The Rules, Part LV

Financial intermediation reduces volatility.  In bull markets, demand for financial intermediaries drops. Ordinary people do well if they have a budget and stay within it.  They do even better if they save and invest, but really, they don’t know what to do.  Market returns are like magic to them.  They don’t know why they occur, […]

The Rules, Part LIV

When do employee and corporate incentives line up?  Ideally, incentive schemes should reward people with a fraction of the additional profitability that resulted from the additional work that they did.  Difficulties: measurement impossible in many cases, people could receive a bonus when the firm is not profitable, neglects synergies (both positive and negative). Though I […]