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Benn Eifert 🥷🏴‍☠️ Profile picture
Benn Eifert 🥷🏴‍☠️
@bennpeifert
CIO @ QVR. Derivatives and volatility. Tweets may relate to undisclosed investment holdings. No investment advice. Anti-fascist.
Matthew Mansfield👹 Profile picture CRE Profile picture David Profile picture TurkeyClubSandwich Profile picture Daz Profile picture 70 subscribed
Dec 6, 2022 • 8 tweets • 2 min read
To briefly reiterate, on derivatives notional and counterparty risk.

Over the counter (OTC) derivatives are traded bilaterally between two large counterparties, under legal contracts called ISDAs.

Positions are marked daily and cash flows exchanged. No IOU's.

>> If an insurance company has a billion dollars of notional on an interest rate swap with a bank, the value of that contract changes as interest rates change.

If the position marks $1mm in the insurance company's favor, the bank wires them $1mm.

>>
Dec 5, 2022 • 7 tweets • 2 min read
Looks like we are doing Get Excited About Gross Derivatives Notionals" today again.

Unfortunately, because of a Bank for International Settlements report. These people should know about things.

A few notes and threads linked below. The excitement in question and my quick explanation
Dec 2, 2022 • 30 tweets • 6 min read
OK. Follow-up story about the transformation of investment bank risk-taking after Dodd-Frank and Basel III, and the rise of toxic Alternative Risk Transfer programs in derivatives. 💥

1 Before the Great Financial Crisis of 2008, the major investment banks used to be the center of aggressive risk-taking and speculation in financial markets.

They operated as dealers and market-makers, but also as massive proprietary risk-takers.

2
Nov 28, 2022 • 30 tweets • 6 min read
As promised, a story about how derivatives markets work to transform risk but inevitably tend towards speculative excess.

The context: popular Asian and European structured investment products, exotic derivatives dealers, and enigmatic corridor variance swaps.

(1/n) First off, I talk about some of this in two episodes of Bloomberg's Odd Lots, if you want more detail they might be worth a listen (2/n)

podcasts.apple.com/us/podcast/odd…

podcasts.apple.com/us/podcast/odd…
Nov 19, 2022 • 13 tweets • 2 min read
a theme that has come up a great deal this year is the perception that equity index tail hedges "aren't working"

important thing to keep in mind here is the robustness of a specific strategy to the path and speed of a market selloff

tail hedge or "flash crash hedge" ? stocks experienced a slow, choppy grind down, S&P down mid twenties percent at trough, analogous to the feel of the tech bust of 2002-03 but much smaller

last few market stress periods were much faster and more explosive - March 2020 we saw S&P down 34% in three weeks
Nov 18, 2022 • 5 tweets • 2 min read
right. if twitter goes down, but you have done your duty and are on my list for the live Zoom event bc you donated to JDRF or pre-ordered Dr. Watson's book, you can email me thru our website, just reference your twitter handle
qvradvisors.com jdrf
Nov 17, 2022 • 5 tweets • 2 min read
if you're afraid of me but have been dying to get me to answer a question, here's an example of an opener that worked to get me to accept a cold dm request Image note the masterful combination of flattery and very specific fight-starting that is sure to lead to engagement
Nov 16, 2022 • 6 tweets • 2 min read
My friend @benegotherit's debut novel is available for pre-order today. I've been delighted with her recs in award-winning science fiction this year and soon I get to read her deadly contribution. Support your local Twitter resident authors before this app self-immolates! Pre-order links here (Amazon and lots of others). DM me evidence and you win a microscopic nod of Dr. Eifert's approval.

penguinrandomhouse.com/books/734122/l…
Nov 15, 2022 • 4 tweets • 1 min read
can't wait for elon to buy a hedge fund and start tweeting shit like "apologies, the covariance matrices were being mis-calibrated by the volatility engines under non-ergodic conditions in the hot path, stand by" "the woke left-wing quants are terrified of our radical free-math experiment. they've been sabotaging us from the beginning. now they are shitposting on twitter about Power Peg and I don't know what it means but its making me inexplicably aroused"
Nov 14, 2022 • 19 tweets • 6 min read
what's Benn reading 11/13/22

- finished Babel-17 (Delany, 1966). my second Delany in the last few months (after Dhalgren, 1974). a fantastically good time, so much more imaginitive than the standard mass sci-fi of the next thirty years as usual i am not going to attempt a proper literary analysis here, i have some untrained thoughts but there are much better people to get real knowledge from
Nov 6, 2022 • 18 tweets • 5 min read
what's Benn reading (non-finance) 11/6/22

- finished The Disposessed (Le Guin, 1974). Marvelous book from the Vietnam War era, using a science fiction setting to challenge the inevitability of the social and political systems that we have rather than provide easy answers (imo) I find it to be the purest counter to Ayn Rand, because it is a deeply individualist narrative that celebrates creativity and brilliance, but not in the spirit of arrogance, elitism and entitlement as with Rand. Rather it is an anarchist manifesto.
Nov 5, 2022 • 7 tweets • 3 min read
I think we should progress this narrative of the implosion of late-stage entertainment capitalism in a maximally entertaining way for onlookers all.

Perhaps a series of absurd wagers with @elonmusk, @DavidSacks and @Jason to determine the fate of Twitter? To determine whether or not Twitter retains content moderation policies:

I wager that @elonmusk , the great engineer, cannot build a device on his own to launch 500 pounds of olives half a mile into the sea, despite advantage of trying thousands of years after Archimedes's wager
Nov 1, 2022 • 16 tweets • 3 min read
"but my machine learning model can forecast asset prices!"

stationarity is one of the most important concepts in probability and statistics

the essence of its meaning is that the specific pattern you are trying to understand is constant in a probabilistic sense technically, its unconditional joint probability distribution does not shift over time.

in blackjack, the rules of the game are known and constant, and based on the cards seen so far we can know the probabilities of the outcomes of the next hand.
Oct 25, 2022 • 14 tweets • 2 min read
ok putting this up here bc so many q's --

better to forget that you ever heard "sticky delta" or "sticky strike" vol heuristics. i understand you ppl into sticky sht but fixed strike vol is just a definition- the black-scholes implied volatility of a particular fixed strike option (eg spx dec22 p3500). contrast that with floating strike vol, either by moneyness (strike as % of current forward) or delta
Oct 24, 2022 • 8 tweets • 2 min read
people asking a lot about the skew discussion from the letter. this thread should help.

the key thing is that skew tells you about the market-implied level of statistical covariance between an underlying asset's returns and the implied volatility of its fixed strike options in an environment where fixed strike vol is falling when asset prices fall and rising when they rise, in order for a long skew position (long downside put, short upside call, dynamically hedged) to break even, the skew curve needs to be upward sloping!
Oct 14, 2022 • 26 tweets • 4 min read
ok. am on the train for a bit so can try.

travis clarified that he means the process of forming a new hedge fund management company.

there are different paths here but i can talk about the institutional hedge fund launch and tell a little of our story. institutional investors have strong requirements about the scale, infrastructure and operations of a hedge fund management company.
Oct 11, 2022 • 16 tweets • 3 min read
Quick note on the principle of no-arbitrage in derivatives pricing. Take a simple forward contract for example. If I sell one, I am obligated to deliver the underlying asset to my counterparty on the maturity date of the contract. That asset could be worth a lot more or a lot less than it is today. But that part doesn't matter to me.
Oct 2, 2022 • 20 tweets • 4 min read
ok. on a recovery ride now, will explain this in more detail, though i doubt it will be heard by the infotainment junkies.

there are infinite variations of derivatives; if you bring a termsheet to the top of 200 West Street and convince the Goldman partners to trade it, game on key points:

1) the units of measurement of any derivative contract are specific to its unique nature, and cannot be compared to units of substantively different types of contracts

2) many derivatives in a bank or hedge fund portfolio represent offsetting positions or hedges
Sep 27, 2022 • 25 tweets • 4 min read
ok. this references the big daddy of all elementary confusions in derivatives.

Black-Scholes (and related) models, for which Nobel prizes were won: we do NOT use them as models, we use them as normalizations only, as a convenient change of variables. what do I mean here?

A model, as I mean it, is a simplified description of truth, of how the world works. We make some assumptions and draw some logical, mathematical conclusions.

A normalization is just a different way of describing the same information.
Sep 23, 2022 • 13 tweets • 3 min read
taking this in a different direction that is relevant to derivatives trading.

vanna is the cross-partial derivative of an option's value with respect to spot price and fixed-strike implied volatility. equivalently, it is the rate of change of vega as spot prices rise; and the rate of change of delta as implied volatility rises.

also equivalently, it is risk exposure to spot / fixed strike vol covariance, E[dx * dv].
Sep 21, 2022 • 14 tweets • 3 min read
ok this is a good one and self contained enough to do on a recovery pton ride.

the tl;dr is that large sophisticated prop firms and hedge funds running volatility arbitrage strategies in listed options effectively look like market makers in how they execute and manage positions. most investors (individual or retail) think of options as something you trade by pulling one up on a screen and entering a limit DMA order for.

SPX Dec22 3800 call, ok that's 40 @ 41, where do you want to bid? 40.2?

market got crushed, new price 39.2 @ 40.2, filled offerside.