[Grovenet] A new look at an old Constitutional Amendment

[Katie Allnutt]

Good points. I thought the article also did a good job of explaining  
that too many managers believed that the formula by itself made up  
for any variations in those same underlying assumptions.  They had no  
true understanding what the formula actually did or did not take into  
account.
My hat is off to the writer of the article because he explained a lot  
in just a few pages. I wonder if the managers who used this formula  
had read such an article early on whether we would be in the mess we  
are in today.


Thanks for reading it.

Katie


On Feb 24, 2009, at 9:56 PM, David Morelli wrote:

> The underlying assumption of the formula is that the "the market
> knows the value of the product and the market price will reflect the
> risk".  This is close to the standard conservative mantra for a wide
> variety of issues.
>
> The market doesn't know.  It guesses.  And some guesses about risk
> are very expensive mistakes.
>
> Caution can be a useful practice.
>
> David
>
> On Feb 24, 2009, at 10:25 AM, Katie Allnutt wrote:
>
>> While I was dinking around with Bob's article I ran across this one
>> too.
>> Not related to the constitution but more aimed at understanding the
>> economic mess that has been building over the last several months.
>> It helps with vocabulary like tranching, collateralized debt
>> obligations, credit default swaps, etc.  We should all understand
>> both the constitution and the economy better.
>>
>> One good article deserves another....
>>
>> http://www.wired.com/print/techbiz/it/magazine/17-03/wp_quant
>>
>> or
>>
>> http://tinyurl.com/au8f4p
>>
>> Katie
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