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Not sure how they could really validate their models given that "market making" in houses is probably really thin - if at all. Finding alpha in financial marke
by RandomLensman 5y ago
Not sure how they could really validate their models given that "market making" in houses is probably really thin - if at all.
Finding alpha in financial markets is just tough (real assets or not), and real estate also needs a lot of capital, which makes "waiting it out" tough
- JackFr 5y agoI can make a market by quoting a bid and ask. To run a market making business I have to know how to hedge my net position and manage my cost of carry. I find it crazy hard to believe that they just went long a few billion in houses just based on a model of price and failed to hedge vs. the secular market and didn’t model time to sale. But if you believe the popular press maybe that’s what they did.
- RandomLensman 5y agoAre there efficient hedges avaible on a few B of RE? I thought the derivatives space is pretty thin there these days, but not my area of expertise.
- pas 5y agooptions on anything that's correlated with it should do it. (basically if "RE is up" so should builders, suppliers, big corporate lenders, mortgage processors -- so if they want to hedge against RE going down they could have bought options that pay when those go down)
- JackFr 5y agoI don’t know of anything exchange traded or terribly liquid, but if I called Goldman and said I wanted a one or two billion dollar swap on the Case-Schiller Home Price index I’m sure they could work up a quote for me.