You’d think there’d be some way to make a more symmetric asset, but there really isn’t, not one that people are interested in.
Today’s Money Stuff talks about “cash-settled swaps”: “just a bet in which you pay me $1 for every dollar that Tesla stock goes up, and I pay you $1 for every dollar that Tesla stock goes down.”
Do you have thoughts on those? They sound like they’d be more symmetric, but I could well believe I’m missing something. (Maybe them being exactly symmetric makes them not super useful? But I don’t see why they’d have to be; I assume you could make it $0.80 for every dollar that Tesla stock goes up, or one party could pay the other for entering into the trade.)
Oh cool! These definitely seem like they’re on the Pareto frontier for efficiency of asset pairs returns given collateral risk. However, I think this has isomorphic risk-reward as actually owning the assets, just minus the collateral. (If the real asset makes a dollar, this makes a dollar; if the real asset loses a dollar, this loses a dollar; QED.) So, it doesn’t actually fix the fact that the short side has a max return, while the long side doesn’t, or the fact that the median movement is upward, etc. The main benefit here is just the potential for very increased leverage, since there is no minimum capital needed.
(The downside is just in social cost, since you’re adding 0 EV to the economy but still increasing correlated volatility significantly. Normal assets have positive EV)
Today’s Money Stuff talks about “cash-settled swaps”: “just a bet in which you pay me $1 for every dollar that Tesla stock goes up, and I pay you $1 for every dollar that Tesla stock goes down.”
Do you have thoughts on those? They sound like they’d be more symmetric, but I could well believe I’m missing something. (Maybe them being exactly symmetric makes them not super useful? But I don’t see why they’d have to be; I assume you could make it $0.80 for every dollar that Tesla stock goes up, or one party could pay the other for entering into the trade.)
Oh cool! These definitely seem like they’re on the Pareto frontier for efficiency of asset pairs returns given collateral risk. However, I think this has isomorphic risk-reward as actually owning the assets, just minus the collateral. (If the real asset makes a dollar, this makes a dollar; if the real asset loses a dollar, this loses a dollar; QED.) So, it doesn’t actually fix the fact that the short side has a max return, while the long side doesn’t, or the fact that the median movement is upward, etc. The main benefit here is just the potential for very increased leverage, since there is no minimum capital needed.
(The downside is just in social cost, since you’re adding 0 EV to the economy but still increasing correlated volatility significantly. Normal assets have positive EV)