Confessions of a researchaholic

March 31, 2021

Total return swap

Filed under: Real — liyiwei @ 10:27 am
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I listened to this WSJ podcast about recent block selling from some banks caused by a total return swap.

Apparently, it is possible to structure financial instruments into various forms as long as there are counter parities on each side.
In that particular case, a bank purchased a set of stocks and swapped the variable return (dividends and capital gains/losses) with a fixed return, and had to sell the assets when the counter party failed to pay for capital losses, causing further downward spiral.

February 18, 2021

Pricing bananas

Filed under: Real — liyiwei @ 4:28 pm
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I noticed widely different prices of bananas across groceries in my neighborhood:

Trader Joe’s (Menlo Park): $0.19 each (regular)
Whole Foods (RWC): $0.69 per lb (organic)
Key Markets (RWC): $0.99 per lb (regular)
Roberts Market (Woodside): $1.29 per lb (regular)

Which made me wonder how groceries set up prices in general.

November 19, 2017

EE bonds versus I bonds

Filed under: Real — liyiwei @ 5:36 pm
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The individual savings bonds (I and EE) offered by the US treasury can be a good (conservative) subset of an investment portfolio, but some basic calculation can help decide whether and how to invest.

The current (fixed) rate of the EE-bonds is 0.1 percent, which, if compounds for 20 years, will increase the original face value by only 2 percent!
The treasury will guarantee to double the face value at the 20 year anniversary. This translates to about 3.53 percent increase per annum, which is not too bad given the current low rate environment. But we have to wait for 20 years and trust the treasury not to mess with the rates or the policies. A lot of things can happen in just 3 years, not to mention 20 (e.g. inflation).

I-bonds offer higher rates (around 2.5 percent recently) which are adjusted for inflation (unlike the EE bond rates which remain fixed). Their values are not guaranteed to at least double after 20 years, but they have a much lower opportunity cost than EE bonds without betting on interest rates or treasury policies.

March 27, 2016

Equality versus fairness

Filed under: Real — liyiwei @ 11:05 am
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A CEO gets paid 100 times the average employee salary. It is definitely not equal. But is it fair? The answer depends on whether the CEO has contributed 100 times than the average employees.

It is not always easy to tell fairness from equality, but it is important not to confuse the two.

Fairness should be maintained, but it is unfair and counter-productive to enforce equality.

July 6, 2015

Hacks

Filed under: Real — liyiwei @ 10:36 am
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I chose engineering over medicine as my college major, mainly because the engineers understand their systems much better than the biologists.

(Ever since as a kid I can sense that the doctors do not know what is really going on inside my body, so I try to fix myself as much as possible before my parents can drag me to a hospital. The most complex software system pales in comparison to the human bodies.)

But that is before I touched economics, which turned out to be even hackier. As Soros said, social systems are reflexive.
🙂

July 4, 2014

Flash boys

Filed under: Real — liyiwei @ 12:01 pm
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The finance and tech industries have been the whipping boys for American inequality. Lie in their junction are the algorithm traders.

A specific form of algorithm trading, with high frequency as depicted in this book, is to arbitrage the time differentials between signals traveling through different electronic routes.
For example, say you want to buy or sell a block of stocks too large for any single exchange to fulfill. Your order is then broken down into smaller blocks, each routed to a different exchange. A high frequency trader, by placing small orders for all stocks in all exchanges all the time, like a fisherman placing baits, can detect your order arriving in the first exchange, and quickly insert itself as the counter party of all your other orders arriving later in other exchanges. This allows the trader to make a small amount profit multiplied by a very large number of trades.
In order to pull this off, a high frequency trader has to be on the frontier of high performance computing.

This is a highly entertaining read like many of Michael Lewis’ previous books. But the distinction is not all that clear between the narrated protagonists and antagonists, who are all wealthy financiers.
Instead, the most intriguing character I found in the book is Sergey Aleynikov, a former Goldman coder whose prosecution triggered the start of the book, in which he was quoted:

If the incarceration experience doesn’t break your spirit, it changes you in a way that you lose many fears.
You begin to realize that your life is not ruled by your ego and ambition and that it can end any day at any time. So why worry?

June 30, 2014

The market for parking

Filed under: Real — liyiwei @ 10:18 am
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Instead of banning parking apps, the SF city should think about how to collect money leaving on the table.

September 21, 2011

Why software is eating the world

Filed under: Real — liyiwei @ 5:20 pm
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I highly recommend this article from Marc Andreessen, especially for computer science folks.

To be fair, I think he is a bit too optimistic (as an entrepreneur he should be), but he still made plenty good points.

This is not exactly a new article, but I just realized that a lot of people haven’t read it yet, thus the sharing.

August 20, 2011

Chinks on the armor

Filed under: Real — liyiwei @ 10:23 pm
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Two landmark stores in my neighborhood Borders (Palo Alto) and Andronico (Stanford), closed shops recently.

I used to think that the Bay Area is so different from the rest of the America (and the rest of the world). It is the cream of the crop. It seems invulnerable. It felt almost nothing has changed, even after the dot com bubble, which it triggered. When America and the rest of the world set into recession after 2008, it managed to come up with a bubble on social networks. Companies are still hiring, and well paid jobs are plenty. It even landed several friends of mine who recently graduated from top Asian schools.

But I am not so sure now. The closure of these 2 shops, which I thought will be there forever, just felt different. Something has changed.
Are those the natural parts of relentless creative destructions, or signs of more ominent things to come?

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