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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]]. | ||
===Origins=== | |||
The urban myth was that a junior salesperson at [[Wickliffe Hampton]], [[Albert Coldfall]], invented the credibility derivative when out shopping for records one sunday in 1987. | The urban myth was that a junior salesperson at [[Wickliffe Hampton]], [[Albert Coldfall]], invented the credibility derivative when out shopping for records one sunday in 1987. | ||
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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 a new asset class was born. | ||
===Growth of asset class=== | |||
Taste arbitrage quickly grew out of its origins in the second-hand record market. Before long, [[credibility | 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. | ||
Speculators in the City of London quickly saw the opportunity for levered plays on taste, and the synthetic credibility default swap market exploded. Desperate to find a fresh sources of loucheness to feed the demand flooding in from hedge funds and trading desks, fashion standards among originators taste products rapidly declined. Originators talk to layering credibility default risk ''upon'' credibility default. | Speculators in the City of London quickly saw the opportunity for levered plays on taste, and the synthetic credibility default swap market exploded. Desperate to find a fresh sources of loucheness to feed the demand flooding in from hedge funds and trading desks, fashion standards among originators taste products rapidly declined. Originators talk to layering credibility default risk ''upon'' credibility default. | ||
===Great credibility crash of 1987=== | |||
It all came to a juddering halt with the in acid-wash jeans crash of 1987. Unable to trade out of positions as the market turned, and unable to fund their obligations to term as [[liquidity]] drained from the [[commercial paper]] market, many storied couturiers found themselves having to close short enormous long positions. Those who could not care successful found themselves in receipt of container loads of unsellable white denim dungarees. | |||
{{sa}} | |||
*[[Credit default swap]] | |||
{{ref}} | {{ref}} | ||