Thursday, April 16, 2009

Growth vs Risk

S&P 500 vs. Real yield by VIX
¨ Theoretically to price an asset two major factors that are taken into account are expected yield and expected future growth rate. But in reality there are other factors that too impact the pricing of asset due to factors of supply and demand. Today’s chart looks at the performance of S&P 500 since 1997 overlaid with and a ratio which is the 5 year TIPS yield adjusted by VIX i.e. (1+ 5Y TIPS yield) / (1+VIX)
¨ The yield expected by investors on assets is the sum of risk free rate i.e. yield on government bond and risk premium, the latter is dependant on the risk which is volatility of an asset. Assuming yield as a proxy for expected growth and VIX as a proxy for risk premium we get the primary ingredients to price S&P 500. Though the caveat is that the maturities of government yield and VIX are not comparable. Using two factors we get a ratio which kind of replicates the price level of S&P 500

Friday, April 10, 2009

Men will be men

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Don't miss the last image it is worth a Mona Lisa
Once again thanks to Pranav

Open fly

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An open fly refers to the unintentional leaving of one's fly unzipped or unbuttoned. It is often considered humorous if a person is caught with his or her fly down.

Your fly is open!
However, the situation is not always seen as embarrassing. Winston Churchill, while at a public function, was handed a note reading "your fly is unbuttoned." Churchill scrawled on the note returning it as "dead birds do not drop out of nests."[1]

Thanks to Pranav