I'm going to Athens for the first time next Monday and Tuesday to speak at a conference on derivatives. I arrive midday Monday and had been scheduled to speak Monday afternoon and early Tuesday afternoon. I had hoped to spend Tuesday morning looking around Athens. But now the conference organizers have asked me to speak Tuesday morning, too. Oh, well. I'm sure the Acropolis sucks, anyway. I'll make my own Acropolis, and it will be *way* better.
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3 comments:
Geek!
I fear you'll no longer be so friendly to me once I confess I don't really know what a derivative is. I have heard of Athens before though.
I'll make myself even geekier: a derivative is a financial instrument whose value is derived from the value of something else.
An example would be an options contract -- a contract which gives you the right (but not the obligation) to buy, say, 100oz of gold in three months at a price agreed today. If the price of gold goes up in the meantime, your contractual right is worth something and you could sell it to someone else. So there could be (and in fact is) a market in gold options.
Derivatives are mostly used to hedge risk (although they can be used to speculate as well). If you're a corn farmer, you could use corn futures or options to lock in a price for your corn in advance so you wouldn't have to worry about what market conditions will be like when your corn is ready to harvest.
The same basic principle of risk management applies to most companies. The risks involved in financial businesses (banks, etc.) get pretty complex, so managing those risks gets difficult and often requires complex derivatives.
If you pay attention to the financial news, you'll hear uninformed people rag on credit default swaps and other derivatives as being dangerous and playing a role in the current crisis. But where banks have been having problems, it's not so much because of derivatives as much as it is because people didn't do as good a job as they should have managing risks. Just like the woes of the U.S. auto industry aren't attributable to the factories used to manufacture cars as much as they are to poor risk management (like investment in SUV lines in the face of growing worldwide energy demand).
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