This is classic Business Insider. They explicitly ignore the context and try to shake you up with a cherry picked quote. Jamie Dimon doesn't think, and doesn't want his reader to think, that October 15th was a once in a 3B year move. Specifically, in the letter, Jamie Dimon 1) never uses the term "flash crash" and 2) spends the previous five paragraphs explaining exactly how and why liquidity dynamics in the fixed income markets have changed.<p>What he is saying is that the Oct 15th move looks really strange, but not if you actually understand how fixed income market makers are reacting to the Volker rule. Quoting Dimon:<p><i>For instance, the total inventory of Treasuries readily available to market-makers today is $1.7 trillion, down from $2.7 trillion at its peak in 2007. Meanwhile, the Treasury market is $12.5 trillion; it was $4.4 trillion in 2007.</i><p>What he's saying is that market makers have smaller inventories on absolute terms, and much smaller inventories on relative terms, so when multiple big market participants try to move in the same direction at the same time, there is much less inventory available to soak up demand.
Dunno guys, when six-sigma events keep happening every seven or eight years, maybe it's time to reconsider a normal distribution as our go-to model.
Wall Street has historically underestimated tail risk. I'm curious under what model this is a "once in 3 billion years" sort of move. Basically, financial markets don't behave as a normal distribution, and black swans are a lot more likely than their 7-sigma probabilities would suggest.
> of course, this should make you question statistics to begin with<p>This doesn't make me question statistics at all. What it does do is further my belief that those doing financial forecasting have the same issues as meteorologists: incomplete models.
This is not at all surprising. Statistics isn't the right tool for financial analysis... it's just the best tool that we have. Incredibly unlikely statistical events happen all the time in finance.<p>A great read on an alternative view on the topic of using statistics for finance is The (Mis)Behavior of Markets by Benoit Mandlebrot [1]. It's very well written, basic enough for most to comprehend and first book on finance I read in college (before I went on to major in finance + math).<p>The aforementioned book has some very interesting notions with Trading Time being my favorite. Basically one can near-perfectly "forge" financial data with fractal objects called "financial cartoons" [2]. The objects are composed to two distinct fractals - one for price vs trading time and another for trading time vs clock time [3]. The latter rescales the volatility seen former, either compressing or expanding it. Rescaling volatility isn't a new idea, but it was a parallel "discovery".<p>There has been some work on figuring out how to use Fractal Geometry to analyze financial time series data but it's still in its infancy. The problem is figuring out how to transform the data into the fractals domain + figuring out what the results from a fractal based analysis would mean for forecasting future events. I've been working on these problems for many years (in earnest in college and as a hobby thereafter) but made little true progress.<p>[1] <a href="http://www.amazon.com/The-Misbehavior-Markets-Financial-Turbulence/dp/0465043577" rel="nofollow">http://www.amazon.com/The-Misbehavior-Markets-Financial-Turb...</a><p>[2] <a href="http://classes.yale.edu/fractals/randfrac/Market/Fake/Fake.html" rel="nofollow">http://classes.yale.edu/fractals/randfrac/Market/Fake/Fake.h...</a><p>[3] <a href="http://classes.yale.edu/fractals/randfrac/Market/TradingTime/TradingTime.html" rel="nofollow">http://classes.yale.edu/fractals/randfrac/Market/TradingTime...</a>
I suppose that means the Swissie unpegging from the Euro qualifies as a once-in-six-trillion-year event ;)<p>Could any of the experienced traders on here offer some insight into taking advantage of the upcoming volatility in intra-day Treasuries price-action? Is it mostly done via TY futures and options or are some of the directional, leveraged ETFs (e.g. $TYO) also attractive? Or are indirect strategies preferable?
I sell premium as a primary investing strategy and as a rule there are only 20 or so underlyings with active enough derivatives markets by my standards. In widely traded underlyings not only do you get tighter markets, but a more valid crowd-sourcing of option probability.<p>As a rule, derivative liquidity in the bond market is significantly lower than equities.