| Description |
xx, 399 pages : illustrations ; 24 cm |
| Contents |
Foreword / Harry M. Markowitz -- Pt. I. From Ideas into Products. 1. Options and Option Replication. 2. Synthetic Portfolio Insurance: The Sell. 3. A Free Lunch? 4. Who Needs It? -- Pt. II. The Crash of 1987: A Reality Check. 5. The Fall of a Reigning Paradigm. 6. Animal Spirits. 7. Bubbles, Cascades, and Chaos. 8. Futures and Index Arbitrage -- Pt. III. How Dynamic Hedging Moved Markets. 9. Synthetic Puts and the 1987 Crash: Theory. 10. Synthetic Puts and the 1987 Crash: Evidence. 11. Alibis I: The US Crash. 12. Alibis II: Across Time and Space. 13. Did Insurance Live Up To Its Name? -- Pt. IV. Option Replication Resurrected. 14. Mini-Crashes of 1989, 1991, and 1997. 15. Sons of Portfolio Insurance. 16. The Enduring Risks of Synthetic Options. 17. Living with Investment Risk. 18. Late Developments: Awful August 1998 and the Long-Term Capital Fallout -- App. A. The Early Debate -- App. B. Option Basics -- App. C. Option Replication |
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App. D. Synthetic Options versus Static-Allocation Portfolios |
| Summary |
Bruce Jacobs sifts through the history of modern finance, from the efficient market hypothesis to behavioral psychology and chaos theory, to determine the cause of recent market crashes. He finds that some investment strategies, especially those based on theories that ignore the human element, can self-destruct, taking markets down with them. Of particular concern is a trading strategy that grew out of the option pricing model developed by the late Fischer Black and Nobel laureates Myron Scholes and Robert Merton. Used by market professionals, this strategy, known as option replication, requires mechanistic selling as stock prices decline and buying as stock prices rise. When a large enough number of investors engage in this type of trend-following "dynamic hedging," their trading demands can sweep markets along with them, elevating stock prices at some times and causing dramatic price drops at others |
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Capital Ideas and Market Realities uncovers the hidden risks these products pose for market stability and investor wealth |
| Analysis |
Portfolio insurance |
| Bibliography |
Includes bibliographical references and index |
| Subject |
Hedging (Finance)
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Financial crises.
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Stock options.
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| LC no. |
99012641 |
| ISBN |
0631215549 hardback |
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0631215557 paperback |
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