4 ms·
> by definition unknown They're a known-unknown. Well-defined risk can be priced in. Black swans / unknown-unknowns can't.
by xapata 4y ago
> by definition unknown
They're a known-unknown. Well-defined risk can be priced in. Black swans / unknown-unknowns can't.
- Godel_unicode 4y agoKnown in the sense that they know it’s possible, sure. Known in the sense that they know what the likelihood of any given rate increase is over 15-30 years (and are therefore capable of pricing it in)? No. “Priced in” has a very specific meaning, it’s not a generic term for being aware that something might happen.
- xapata 4y agoThe derivatives market for hedging interest rate risk is fairly liquid. They can add the cost of an appropriate hedge (according to their risk appetite) into the price of the loan.