Tuesday, July 30, 2013

Gladwell on Taleb

Very Interesting.  Gladwell has a profile of Tlaeb. The hedge fund that buys out of the money options. There is a good link to Kahneman and Tversky.

 "Nonetheless, we have strong preferences among them. Why? Because we're more willing to gamble when it comes to losses, but are risk averse when it comes to our gains. That's why we like small daily winnings in the stock market, even if that requires that we risk losing everything in a crash."

The most interesting point is whether options are under-priced.  We know about the smile and the way that this allows fat-tails.  Is that sufficient?  I supposed they checked.

No comments: