Scratching my head at the long forgotten ß, γ, τ & err vega to my once Macedonian(?) understanding to the pricing components to derivative structured risk instruments.
A good article by Taylor Durden, quoting a mysterious 'Cole' to the 'off balance sheet' risk of a very big, to 'bigly' written option industry that is hedged against an unlikely secure & ongoing interest & risk future?
The conventional pricing structure was, and still is, posited that tight liquidity in the bonds sector would be stauncnched and eventuate from a liquidity realisation in an overpriced equity sector, and visa versa
But quantitative easing, it would seem, has resulted in the simultaneous inflation of BOTH sectors, i.e. bond & share prices - meaning that one sector will not rescue the other.
Note I use 'will not' implies some sort of volition, but suspect the true situation is rather a case of ►► CAN NOT!
This is a odious situation for the world's finances.
Do central banks internationally simply stand by and watch their now vast asset positions collapse, or do they enter the markets, making the situation worse through realisation their own assets at risk? In so doing - exasperating there own positions? The commercial banking system is way too, too small now to save central banks world wide.
Central Banks who like Topsy, have simply growed & growed... all to what wit?
To save banks too big to fail. In this protection of the commercial banking sector leaving themselves totally vulnerable to their own collapse...
All that remains to protect central banks is the Long Call Mugabe Option...to cover their exposure.
And expression of some very dark, dark vega!
Or that second derivative of vega over risk ► vomma vomiting?
