Lets talk variance

[Amahrix]

hes talking more dynamic hedging math.. which imo I don’t think you need to know.
The basic algebra stuff yeah but idk about PDE’s and such.

look up Nassims paper “Silent Risk” and look at those damn equations smh lol

I can kind of understand The Black Swan, Fool By Randomness but the mathematics? Too mathematical for me to comprehend.

Any suggestion what I can do other than go back to school?

need not burden yourself with the technical work. What is the most important is to revisit the work (titled Incerto) and attain a deep, deep level of the understanding of the concepts. That’s it. The rest after that “critical point of understanding” will be a piece of cake because you’ll have almost unwavering determination after such realizations upon reflecting on the knowledge.

I say to only read the technical if you have doubts about the underlying idea and need to convince yourself with mathematical reasoning. Or if you’re into statistics

 

[Amahrix]

What does Taleb have to do with understanding variance swaps?

PS. pretty sure he left the market before var swaps were a thing, too

You’re not a bright guy, are you

@.sigma , I suggest you get a deep level of conceptual understanding of Nassims knowledge that he shares on such concepts(var, mean, stddev, MAD).

goodluck

 

[TheBigShort]

You’re not a bright guy, are you

If you knew him IRL you would be embarrassed.

Dude, you talk about 6 simga moves and your hard on for Taleb all the time. Everyone on this board knows you are to scared to place a trade. I also don't think anyone here takes you seriously.

 

[Amahrix]

If you knew him IRL you would be embarrassed.

Dude, you talk about 6 simga moves and your hard on for Taleb all the time. Everyone on this board knows you are to scared to place a trade. I also don't think anyone here takes you seriously.

You’re a clumsy madman

 

[.sigma]

You’re not a bright guy, are you

are you serious? Lmao

 

[ironchef]

If you knew him IRL you would be embarrassed.

Dude, you talk about 6 simga moves and your hard on for Taleb all the time. Everyone on this board knows you are to scared to place a trade. I also don't think anyone here takes you seriously.

Actually I do take him seriously. His last post in response to my question was very profound and I appreciate it.

 

[ironchef]

need not burden yourself with the technical work. What is the most important is to revisit the work (titled Incerto) and attain a deep, deep level of the understanding of the concepts. That’s it. The rest after that “critical point of understanding” will be a piece of cake because you’ll have almost unwavering determination after such realizations upon reflecting on the knowledge.

I say to only read the technical if you have doubts about the underlying idea and need to convince yourself with mathematical reasoning. Or if you’re into statistics

Thank you for your coaching.

 

[ironchef]

need not burden yourself with the technical work. What is the most important is to revisit the work (titled Incerto) and attain a deep, deep level of the understanding of the concepts. That’s it. The rest after that “critical point of understanding” will be a piece of cake because you’ll have almost unwavering determination after such realizations upon reflecting on the knowledge.

I say to only read the technical if you have doubts about the underlying idea and need to convince yourself with mathematical reasoning. Or if you’re into statistics

Question:

From your understanding of Taleb, does black swan include both tails?

 

[Amahrix]

Question:

From your understanding of Taleb, does black swan include both tails?

Assuming fat tailed/heavy tail distribution, generally speaking, it can. Depends what we’re looking at. And What we define as black swan etc. sometimes a black swan event is when everyone is predicting a tail event to happen and pricing it as if it will, and none does.

I’d like to add a side point just for sake of spreading more knowledge with respect to black swans. Black swan is subjective, not objective

A turkey slaughtered on thanksgiving; it’s a black swan event to the turkey... but not a black swan event to the butcher

The turkey can look at its past data and assume tomorrow will be no different than the last 1,000 until alas, it’s on a thanksgiving dinner table

Edit: fun fact: not every tail event is a black swan event. COVID19 is not a black swan event. We knew and have known that epidemics have happened and can happen again. Therefore, it’s not something to be deemed a black swan. It certainly is a tail event.

Edit2: If you have a payoff space, and you cut the left tail off via defining your risk. You can expose yourself only to “positive” blank swans. So you benefit from such events. In this case, if we look at the underlying (let’s call it “x”), it can exhibit heavy tailed properties (left and right) but in our payoff space, via defining our risk, we can eliminate the downside effect of a tail event or black swan event by capping losses and taking it a step further by being long vol so we actually benefit from such surprises

 

[.sigma]

Question:

From your understanding of Taleb, does black swan include both tails?

Both tails to what distribution? It depends on what exactly are you talking about?

For example one could look at the distribution of the effect of government intervention on volatility. Plot the SPX returns then plot a running SPX 21d return distro, the effects of intervention also has tail risk on the left and right tail. The left is deflation, war, political revolutions... the right tail is inflation, currency devaluation, hyper asset bubbles.

When talking tails we are talking about the second moment to the second moment, gamma on gamma.

This is past skew, and kurtosis. Taleb was fascinated by the mispricings of OTM options. And Taleb was taking advantage of the farthest OTM shit ever. I'm pretty sure he made his fortune in eurodollars.

But tails can definitely occur on both left and right. But let's take a look at the structure of the market.

Spot is birthed at the IPO, and a price is determined instantly. Let's assume this price is $1/share. From here on out, this $1 really has no where to go but up, sky is the limit. Let's say this stock drifts up geometrically like a Brownian motion particle fluttering around and oscillating in intervals annually and years later is now at $222/share. Well the market floated from $1 all the way to $222 so the option markets traded all around ITM/ATM/OTM while this stock drifted up. Obviously more puts have been traded than calls. Why? Well idk really, but I'm thinking because calls are infinite and only trade as high as the stock will go, so all the puts/calls below have been traded, but all those OTM calls above 222 won't be traded as much, thus creating a structure. Puts trade more than calls, this is a fact. Does it mean anything? No.