Arguably the next risk to contemplate is that none of the slide risk for banks , exchanges or funds is liquidity weighted .
The models assume a constant liquidity bias from times of plenty to a time of stress - and this fundamentally undermines all of the already bogus normal distribution models , as high liquidity assets become risk proxies in times of stress and move from being docile leviathans to a highly volatile ones, where as highly volatility less liquid assets simply cease trading …
I have previously discussed this significant risk in the way sell sides firms manage their slide risk (autocallables), via LinkedIn with you a couple of years back I think- but the concept remains alarmingly real -
What is ironic is that the usual suspects (AKA the clearing members) have actually conjured an even bigger apex predator out of the shallow end of the gene pool with these heat-seeking for profit CCPs. The Boys are getting a tase of the business end of moral hazard, and they don't like being the Gimp one little bit. Trying to get CCP skin in the game is going to be a root canal. Getting it from the Fed is easier.
Arguably the next risk to contemplate is that none of the slide risk for banks , exchanges or funds is liquidity weighted .
The models assume a constant liquidity bias from times of plenty to a time of stress - and this fundamentally undermines all of the already bogus normal distribution models , as high liquidity assets become risk proxies in times of stress and move from being docile leviathans to a highly volatile ones, where as highly volatility less liquid assets simply cease trading …
I have previously discussed this significant risk in the way sell sides firms manage their slide risk (autocallables), via LinkedIn with you a couple of years back I think- but the concept remains alarmingly real -
ok. been free tier for a bit and have loved the the thought provoking pieces.
just watched the rv piece... im in
looking forward to more fantastic content :D
very cool
What is ironic is that the usual suspects (AKA the clearing members) have actually conjured an even bigger apex predator out of the shallow end of the gene pool with these heat-seeking for profit CCPs. The Boys are getting a tase of the business end of moral hazard, and they don't like being the Gimp one little bit. Trying to get CCP skin in the game is going to be a root canal. Getting it from the Fed is easier.