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Thaler’s mental categories theory Writing an out-of-the-money call on a stock one holds, appears to be a win-win situation (Shefrin) Buying an option is a way of attaining a more leveraged, risky position Lottery principle in psychology, people inordinately attracted to small probabilities of winning big Margin requirements are circumvented by ...
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S = current stock price u = 1+fraction of change in stock price if price goes up d = 1+fraction of change in stock price if price goes down r = risk-free interest rate
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Crude light sweet oil (New York Mercantile Exchange) contract size: 1000 barrels, open interest 431,000 contracts Brent crude, North Sea (International Petroleum Exchange, London) contract size: 1000 barrels, open interest 232,000 contracts
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Every day, the exchange defines a price called the “settle” price, which is essentially the last trade on that day. Every day until expiration a buyer’s margin account is credited (or debited if negative) with the amount: change in settle price contract amount If contract is cash settled, on the last day the margin account is credited with (cas...
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Financial assets: $36500 Retirement assets: $40000 IRA: $21000 Pension: 83259 401(k): 0 Vehicles: $15000 Home equity: $77000 Home value: $120000 Total wealth: $387609
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Instinet: for professionals. Until 1999, it was the biggest ECN Island: for individuals, became the biggest ECN. In 1999 it did 4.9% of all Nasdaq trading volume, compared with 3.0% for Instinet Other ECNs: Redi-Book, Bloomberg, Archipelago
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First Exchange Trade Fund: Standard & Poors Depositary Receipts (SPDRs, Spiders), AMEX 1993 SPDRs hold portfolio of S&P index Management fee: 12 basis points Automatic creation and redemption QQQs, I-Shares Macro securities are analogous to ETFs, but are based on an index. (AMEX). Macro Securities Research LLC, Macro Financial LLC
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Issuance of shares and corporate debt Seasoned issue versus IPO Underwriter provides advice for issuer, distribution of securities, sharing of risks of issue, and stabilization of aftermarket. Underwriter also “certifies” the issue by putting its reputation behind the issue.
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Despite Fed’s lending, a banking panic forced Roosevelt to declare a banking holiday Led to establishment of Federal Deposit Insurance Company (FDIC) opened doors in 1934, funded by premia paid by banks No U. S. panics since
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Because of adverse selection and moral hazard problems, firms often tend to be closely held by people connected to them and knowledgeable about them. But such holdings are inherently illiquid. Banks come to the rescue. Banks create liquidity by accepting short-term deposits and making short-term (effectively long term) business loans. Monitor the ...
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