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That's true about any risk premium, but it could be as simple as not being greedy (a.k.a. controlling the size). The whole risk premium vs alpha is not really relevant to the main discussion which is "hedge funds, as an industry, suck".

I think risk premium and market efficiency are orthogonal to each other. For example, a market could be inefficient without any real risk premium (for a variety of reasons - best example is real estate, highly inefficient market, yet it has very little risk premium). The opposite can exist too -...

Kinda makes you wonder about the embedded credit risk (well, devaluation risk), doesn't it? Once you start thinking multiple generations, risk of an event becomes totally real IMHO. Ps. Mart, did you see my PM?

Not sure that's true. Traders should focus on markets with largest inefficiencies. Risk premium can be fairly priced, in which case you are not producing any alpha. IMHO

Is your expectation that in a non-captive market these things would still trade at a premium to lower duration bonds? PS. I think French had consols trading up until very recently, no?

Kevin, in real world you can't price a one-touch this way, you need to take into account the skew and term structure. There is a good BS-based approximation that you could use but that's beyond this thread

Well, what is your view of the hedge fund landscape? Cause a lot of the negative things said in this thread are true - hard to raise capital beyond FnF, hard to beat benchmarks given the competitiveness of the business, with the new requirements it's hard to cover overhead. From my seat, it's a...

Well, you carry more duration so there are risks that come with it. You get partially compensated for those risks by being longer convexity.

Well, to start, you maximum duration is equal to 1/yield. At the yield of 3%, current 30 year has a duration of about 20. If you assume that term structure will be flat, perpetual duration will be 33, so the "savings" in terms of notional value are less than you think. As Martinghoul rightly...

What exactly makes it the best business in the world?

Somehow technology people think that technology is the key source of alpha or edge. While it helps with efficiency and reduces fuckups, the money comes from elsewhere.

While I don't like BA, the above statement is not really true. Like most hedge fund managers, BA keeps a large portion of his net worth invested in his fund. So if the fund is down money, Bill is down too.

A bookie I know was challenged to drink a bottle of Tabasco when he just started. Ended up in an emergency surgery.

If you look at the performance of many (if not most) long-short funds, they are well correlated with the S&P 500. The real problem is, obviously, that the bigger guys are slowly transforming themselves into asset managers while still charging hedge-fund level fees.

If I had to guess, he had no ideas in a a specific market environment and put up something that kinda sorta made sense. It's a common thing in the fund industry, due to fairly high costs you feel like you are bleeding money if you don't have anything in play. People end up throwing shit at the...

A more sane argument is that exchanges get shut down when the stocks have declined significantly, not that market predicts the closure of the exchange :)

Mav is right, it sounds like he did something inconsistent. A ratio spread is a bet that realized terminal distribution is going to be narrower then implied. You start losing money if the asset drifts past the break even level - if you misjudged the extent of that distribution you are fucked

It was tongue in cheek, obviously. Pure TS roll strategies have a pretty low sharpe or have a pretty nasty blowup risk (depending on the asset). My preference has always been to play in mid-terms where liquidity is still there but the non-primary factor sensitivity is lower

“I’ve seen excitement, and I’ve seen boredom. And boredom was best.” ― Terry Pratchett, The Color of Magic

How are you planning to hedge the spot volatility, if I may ask?