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Credibility derivatives: Difference between revisions
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{{g}}[[Credibility derivatives]] were once the principal means of [[hedging]] [[tail risk]] in fashion industry. They grew out of the popular pastime of [[taste arbitrage]]. | {{g}}[[Credibility derivatives]] were once the principal means of [[hedging]] [[tail risk]] in fashion industry. They grew out of the popular pastime of [[taste arbitrage]], a much simpler [[physically-settled]] contract on the spot market. | ||
===Origins=== | ===Origins=== | ||
The urban myth was that | The urban myth was that an analyst in the [[taste arbitrage]] desk at [[Wickliffe Hampton]] by the name [[Albert Coldfall]], invented the credibility derivative when out shopping for records one sunday in 1987. | ||
Coldfall noticed that his local record store in Chingford, which carried [[Rick Astley]]’s turgid debut ''[[Whenever You Need Somebody]]'' at full price, had nonetheless sold out of it, while fully fifteen copies of Keith Jarrett’s seminal, hard-to-find and unstintingly cool ''[[The Köln Concert]]'' lingered disregarded in a sale bin for a pound fifty each. Not realising what he was doing, Coldfall snapped up all fifteen, just on principle. | Coldfall noticed that his local record store in Chingford, which carried [[Rick Astley]]’s turgid debut ''[[Whenever You Need Somebody]]'' at full price, had nonetheless sold out of it, while fully fifteen copies of Keith Jarrett’s seminal, hard-to-find and unstintingly cool ''[[The Köln Concert]]'' lingered disregarded in a sale bin for a pound fifty each. Not realising what he was doing, Coldfall snapped up all fifteen, just on principle. | ||
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Later he happened to pass a vinyl emporium in Soho and, remembering the shop in Essex, popped in to compare prices. He was amazed to a queue forming for ''[[The Köln Concert]]'', advertised at £25.99 ''but sold out''. Coldfall eventually found the single copy the shop could see fit to even hold of ''Whenever You Need Somebody''<ref>Allegedly a requirement of the promoting record company to carry the number-one selling album of the time, which may explain why the boutique was having it at all: every man has his price.</ref> in its own sale bin, for 50p. | Later he happened to pass a vinyl emporium in Soho and, remembering the shop in Essex, popped in to compare prices. He was amazed to a queue forming for ''[[The Köln Concert]]'', advertised at £25.99 ''but sold out''. Coldfall eventually found the single copy the shop could see fit to even hold of ''Whenever You Need Somebody''<ref>Allegedly a requirement of the promoting record company to carry the number-one selling album of the time, which may explain why the boutique was having it at all: every man has his price.</ref> in its own sale bin, for 50p. | ||
Coldfall offloaded his fifteen jazz albums directly to disappoionted shoppers as they stood in the queue for £40 each, and a new asset class was born. | Coldfall offloaded his fifteen jazz albums directly to disappoionted shoppers as they stood in the queue for £40 each, and realised that once he could set up a Long dated transaction to exchange these items, and thus allowing record shops to hedge their risk to changing tastes, and lockin prices where they expected popularity to grow, and a new asset class was born. But lurking below the surface was disaster in the form of fashion duration mismatch. | ||
===Growth of asset class=== | ===Growth of asset class=== | ||
Taste arbitrage quickly grew out of its origins in the second-hand record market. Before long, [[credibility derivatives]] were big business in the clothing industry: a segment of the economy, of course, with significant exposure to sudden, arbitrary changes in the public’s opinion. | Taste arbitrage quickly grew out of its origins in the second-hand record market. Before long, [[credibility derivatives]] were big business in the clothing industry: a segment of the economy, of course, with significant exposure to sudden, arbitrary changes in the public’s opinion. | ||