What kind of financial instruments are "so hard to understand

>>1845452
Finance is just applied arithmetic with a little statistics sprinkled on top

There isn't a SINGLE financial ````````instrument'''''''' that a high school kid couldn't figure out

Swaps can be pretty fucking nasty. In the aftermath of the 2008 financial crisis I read about several banks making massive surprising losses with swaps even *they* didn't know how to fully understand or properly evaluate for their balance sheet. Heard the same from a couple of friends in auditing - figuring out the true and fair value of a complicated swap product at the end of any given year is pretty much an arcane science.

>>1845456
>There isn't a SINGLE financial "instrument" that a high school kid couldn't figure out
Given enough time and coaching/research/google - yes. But this is approaching "can a million monkeys on a million typewriters come up with Shakespeare" territory.
Most college grads can't even figure out the present value of even simple annuities.

>>1845477
the only reason they are 'difficult' to evaluate is that there is 1 counterparty and its incredibly illiquid so there is no real price discovery

>>1845554
>you need a liquid market to price an asset

Alright, let me break it down for you. Ready?
1. Determine how "risky" the asset is. No, I'm not talking about beta, I'm talking about how risky you perceive it to be
2. Now that you know how risky it is, pick an adequate interest rate
3. Discount the cash flows

Badda-bing badooza, I solv'd it!

>>1845452
Option pricing is a little involved, especially if you really want to understand the derivations. Swaps are a bitch too. But a high school kid with calculus could figure it out.

None of that requires a PhD or even a Bachelor's degree. It just requires that you be better at math than Bill Burr. He's clearly not very smart since he's having children with a negress, and he didn't compute the probability that they will be useless monkeys.

Its all bullshit rules based on math justifying why you owe banks money.

I'm learning modeling now, is this whole industry just reading balance sheets and applying interest / discount rates?

>>1845456
This is only partly true.

Yes, a high school kid could use Black Scholes and plug and chug to value a call option, but I doubt any but the top 1% or so could derive the pde or find a solution for it.

Protip: renaissance and citadel and these other high performance hedge funds aren't plugging and chugging, they're researching pricing for more specific cases and deriving these things all the time. You could probably say anyone can understand these, but only the meme math phd types are actually knowledgeable enough to beat the market.

>>1845452
Over 50% of the trades now are automated bots. The bots math are made by Phd math, let's just say it's way beyond multivarable calculus and beyond complex functions inside complex functions.
Those are the instruments they mean. Once you are working with more than a certain amount of variables some of which are probabilities, some of which are unknown and unknowable and they all depend on each other, it gets Rude.

File: wolf of kekstreet.jpg (29KB, 501x276px) Image search: [Google]

29KB, 501x276px

>>1845452
Try and wrap your head around the Reverse Repo market.
http://www.investopedia.com/terms/r/reverserepurchaseagreement.asp

waterfall payment schemes

>>1845477
I work at the swap desk.

Most of the swaps are pure vanilla ir swaps, that anyone could price pretty easilly, as you only need interest rate curve.

It get's more fun when for some reason banks have sold to someone some complex, swap-based structured product. Let's say you get embedded option to increase or decrease notional in each period. Or you have a window to terminate it, or you put option on swaption etc.

Some of this products require long hours to understand and model. That's why we have PhDs in Maths and Physics that are using pen, paper and python to solve it.


Bermuda options are funny as well, or better - caps made of bermuda caplets or floor with bermuda florrlets.

Also there is a golden rule - 99% of the needs can be done with a simple 1st order derivative product (vanilla swap, option, forward). If bank is pitching you some complex moloch, they usually do it to scam you on charges.

>>1845822
This is the correct answer. Soon machine learning will make it so not one human an truly understand the stock market. There are equations not one human can solve, but computers can solve. It's only a matter of time until the entire stock market is controlled algorithms. At that point it will just be a matter of who controls capital and who makes the algorithms.

>>1845822
>>1845867
>implying that riding the bot wave is not literally the game

>>1845867
Not really. All of these algos use are implemented models that use certain assumptions. In many cases these assumptions might not hold (let's say you've assumed that interest rate cannot go below zero. Suddenly it's negative interest rate policy kicks in and you're in trouble). Many of the quant strategies have imploded in a spectacular way after the sudden change of market condotions. In this cases experienced trader or portfolio manager will react much better.

Even when you look at the stats - past 7 years has the record ammount of weird trades, sudden lacks of liquidity and other algo-induced paradoxes.

>>1845873
Yea I thought you can pay 40$ for a bot to look out for bots

>>1845863
Hey anon I tried to sell a CDS on bonds backed by your virginity, but the buyers demanded a negative spread.

>>1845879
This. Most quant funds fail within a couple years because their math and algos can't keep up with changes in market behavior or conditions.

>>1845884
That means I'm less default-risky than US govt bonds.

Thank you very much for the compliment.

>>1845825
>http://www.investopedia.com/terms/r/reverserepurchaseagreement.asp
boy you are either dumb or you don't have corporate finance basics

>>1845863
>get's