You know that one slogan about how bearish investors always sound "smarter," even if they're wrong most of the time? I'm not sure that being able to conjure up obscure risk scenarios is the same thing as sounding smart. But nevertheless, here is a linkfest in the spirit of that slogan: sometimes, taking some time out to read is a good way to avoid buying stuff at too high a price.
- "VIX options make exotics leap" - This definitely will have been the most entertaining VIX-related story of the week. Exotic options are always fun to think through, but when you add in VIX skew and the dynamics of volatility spikes, how could you go wrong.
- "China training for 'short, sharp war', says senior US naval officer" - A quick hot war between China and Japan is one of the risk scenarios actually worth monitoring this year, and so far all the movement has been in one direction. Unless you count American naval officers talking on the record about the risk scenario, which I'm not qualified to evaluate as a piece of public diplomacy and/or coalition-building, but seems like a step in the direction of deterrence.
- "The Prodigal Sons" - I'm no fan of the milquetoast policy prescriptions at the end (a popular referendum increasing the EITC would surely communicate solidarity more effectively than "national service projects") - but Brooks's telling of the parable here is better than average, for him. Even better is:
- "Moralizing inequality" - Chris Dillow discusses the fundamental attribution error in the context of economic inequality. The "lazy poor" and "greedy banker" labels are false, but they persist because people prefer to tell morality tales rather than focus on the structural causes at work, viz., you know, capitalism.
- "Australian Dollar May Suffer as Fed Tapers, China Slows" - This is a fantastic visualization from Bloomberg of the long-term bearish case for AUD.
- "Understanding N(d1) and N(d2): Risk-Adjusted Probabilities in the Black-Scholes Model" - There are two probability factors in the Black-Scholes formula, and they are different from one another. Traditionally, those factors have not been explained very well, and this paper rectifies that. Or if that's not of interest to you:
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