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Correct, but the article specifically referred to securities as zero-sum transfers. A security is linked to something that has value, and exchanging the securit
by dpiers 9y ago
Correct, but the article specifically referred to securities as zero-sum transfers. A security is linked to something that has value, and exchanging the security doesn’t alter the value of what the security is linked to.
- lmm 9y agoA particular stream of payments with a particular risk profile is an asset that has different (present) value to different entities like any other.
- shostack 9y agoI may not be using the proper terminology here, but would I be correct in restating this as: The underlying value of the asset is just one component, but the vehicle the asset is traded through can change that value equation by adding or removing its own value.
- lmm 9y agoNo, I don't think that's correct. A security doesn't have its own value independently of the payment stream it represents, any more than the deed to a house has its own value independently of the house. But the same payment stream (or house) might be of different value to different people, so buying or selling it can create wealth.
- shostack 9y agoSo the risk and form that the payment stream takes (ie. bond coupons are different from rental property income) might both be $100 for example, but if someone is overindexed in real estate in their portfolio, there may be more value to them in the bond?
- lmm 9y agoYeah. A risk profile isn't just a percentage, it's also a question of what it's correlated with.