Template:M summ Equity Derivatives 12.7: Difference between revisions

Template:M summ Equity Derivatives 12.7 (view source)

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 To be clear this is no idle intellectual speculation: liquidating a hedge is not simply looking at some fantastical model dreamt up by the most delusional quant on the trading floor, arriving at some mad price that will ruin the client for nothing. ''No''. The {{eqderivprov|Hedging Party}} ''is actually long the risk''. It will have to crystallise real liability, using money from its own pocket to flatten out that risk. The amount it pays away is exactly what it will expect its client to suffer. That is the deal.<ref>Yes it is true that derivatives counterparties don’t, legally, ''have'' to hedge, but please, ladies and gentlemen: that is the academic theory. In practice, they absolutely do. The disconnect between a swap dealer’s hedge and the price of their derivative is a matter of interest for stamp-duty specialists only.</ref>
-running a synthetic equity is a boring, fraught job. The {{eqderivprov|Hedging Party}} will be ''most'' unamused if the client asks it to countenance some alternative price someone ''else'' has come up with to value its own hedge liquidation. It will, tersely, say, “Look, I know you have a great relationship with [[Wickliffe Hampton]] and everything, but I could not care a row of buttons where it sees the value of my hedge, frankly, unless it is prepared to by my actual hedge, from me, in which case let’s go.”
+running a synthetic equity is a boring, fraught job. The {{eqderivprov|Hedging Party}} will be ''most'' unamused if the client asks it to countenance some alternative price someone ''else'' has come up with to value its own hedge liquidation. It will, tersely, say, “Look, I know you have a great relationship with [[Wickliffe Hampton]] and everything, but I could not care a row of buttons where it sees the value of my hedge, frankly, unless it is prepared to buy my actual hedge, from me, in which case let’s go.”
 At the point where [[Wickliffe Hampton]] does that, it is agreeing with the Hedging Party on its valuation and does not, Q.E.D. need to be co-determining party.