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i always enjoy the "x is essentially a <somewhat_obscure_financial_instrument>". I feel like it's moderately common in startup thought leader type posts
by sportanova 11y ago
i always enjoy the "x is essentially a <somewhat_obscure_financial_instrument>". I feel like it's moderately common in startup thought leader type posts
- eru 11y agoPut and call options are about as basic as it gets in finance. Though, the more and more I think about the grand-parents comment, the less I understand it: With debt, you can go into default: so all your assets go to the creditor, instead of you paying. That's like buying a put option, not selling one.
- Dwolb 11y agoYeah you're right. It should say something like the payoff of debt owned by the creditor looks like being short a put.
- TeMPOraL 11y agoStacking those together ("X is essentially an Y, 100K of Y are essentially Z, 100K of Z generally behave like U") is what got us the 2008 financial crisis.
- MagnumOpus 11y agoNo need to be dismissive - simple financial instruments are only obscure to those who willfully remain ignorant. Your parent post's statement is a reference one of the basic financial models in asset pricing literature, the "Merton model" (Merton RC. 1974. "On the pricing of corporate debt: the risk structure of interest rates." J. Finance 29:449–70)