A Derivative Podcast is Not a Financial Instrument

Play

The word “derivative” sprung up on Delancey Place last week. Delancey Place is a brief daily email with an interesting excerpt or quote from a book or magazine article. Reading it is a favorite daily ritual. I am constantly impressed with the quality and diversity of the excerpts. I strongly recommend subscribing. It is free and now available as an poorly publicized but full text RSS feed. You can subscribe at DelanceyPlace.com.

The word derivative can be found in many contexts and it is both a noun and an adjective. Generally it describes anything derived from, formed from or reminiscent of something else. For example penicillin, email and Hip Hop are derivatives. Penicillin is derived from mold. The term email is a portmantae derived from the words mail and electronic. Some, including Guy Davis, might say Hip Hop and Rap are derivatives of the Blues.

Mathematicians and financiers also use derivatives. According to Wolframs’s Mathworld a, “derivative of a function represents an infinitesimal change in the function with respect to whatever parameters it may have.” Wikipedia explains a mathematical derivative as, “the [instantaneous] rate of change of a quantity”. I recall that derivatives and their analogs, integrations, were the heart of undergraduate calculus. I wish my math skills were strong enough to explain that to you. Alas, I must refer you back to Wolframs’ Mathworld and Wikipedia.

As for financial derivatives, I can describe them a little better. A financial derivative is an investment or contract that derives its value from an asset. Thanks to Hillary Clinton, the most well known derivatives are probably futures. A future is a promise to buy or sell an asset on a future date for a specified price. Today, you can buy a December 2012 Crude Oil (Light) contract on the NYMEX for about $63.50. If I bought this contract today come December 2012 the seller of the contract would deliver the oil to me. Conversely I could sell the December 2012 today for about the same price. Come December 2012 I would have to deliver the oil to the buyer. In both cases the contract derives its value from the future value of the asset.

Financial derivatives are most commonly used to hedge against risk. For example a farmer could sell a September corn future today to shield himself from risk the price of corn may fall. This type of derivative can be very helpful to farmers and other commodity producers. They plant the corn today, they sell it today and they get paid today. Come September they deliver the corn. Any risk of the price of the corn crashing is borne by the person who bought the corn derivative contract, not the farmer.

In practice though the futures markets and derivative markets are used primarily by speculators. Very few investors actually take delivery or deliver the underlying asset. More frequently they buy the derivative and then sell it before it comes due. Well as long as they can find a buyer.And this brings us back to the Delancey Place excerpt. The corn and crude oil futures I mentioned earlier are exchange traded, i.e., there are central organizations that standardize the derivatives for sale and help buyers and sellers find each other. This Wall Street Journal excerpt contrasts the exchanged-traded market and the over-the-counter (“OTC”) market:

…The over-the-counter market is far larger than the exchange-traded ones. Derivatives traded in this market had a total face value of about $285 trillion at the end of 2005, up from about $94 trillion five years before, according to the Bank for International Settlements, an association of international banks based in Switzerland…In comparison, exchange- traded derivatives had a total face value of about $58 trillion at year-end, according to the bank group.”

These over-the-counter derivative are traded directly between two parties. This is a little scary because the investments are not very liquid. It isn’t too tough to find someone willing to buy corn or oil futures. Maybe not at the price you want, but you can almost certainly liquidate or sell your contracts. OTC derivatives on the other hand are often described as exotic and are specific to the buyer and seller. With a market of only one buyer or seller, an exotic derivative can be very hard to sell. Combine this with the tendency for derivative traders to borrow heavily to buy the derivatives and you have a rather volatile financial situation and hence an issue worth Wall Street Journal and Delancey Place coverage.

Price for US/Israeli Overt Air Strike against Iran (Rule 1.8 Applies) at intrade.com

If you would like to try your hand at derivatives trading without risking too much, check out InTrade.com. On InTrade.com you can buy and sell derivatives of baseball, football, World Cup games and political events including Barack Obama winning the White House in 2008. Now if you don’t care for the nuances of financial instruments fret not, Delancey Place doesn’t typically excerpt from such opaque and technical subjects.

Download the Derivative Podcast

Dave & Adam are podcast wonks

Play


podcast-logo.png
Today’s word, wonk, was spotted at boingboing.net.

The dictionary describes the noun wonk as an excessively studious student, a nerd or a geek. The modern connotation is more nuanced. Today wonk usually connotes a someone well versed or at least very interested in the details and rules.
The BoingBoing post describes Ben Hammersley as an RSS wonk- someone who know a great deal about the inner working and details of RSS. I suspect Dave Winer is the ultimate RSS wonk. Dave wrote the specs for RSS and along with Adam Curry created podcasting.

Typically I find the word policy very close to the word wonk. A policy wonk is person who closely follows government policy. Wonkette.com is a blog by a female, hence the -ette suffix, washington insider. If you ever think you know what is going on in Washington and the U.S. government visit the Wonkette for an alarming look at how much goes on behind the scenes.

The etymology of wonk is murky to say the least. According to Wikipedia its origin may be the reversal of the word know and was used in the British Navy to refer to an inexperienced sailor. I bet it was derogatory.

Today’s Podcast needs your help and a new name. Please send your suggestions to scott at todays podcast.com

Del.icio.us Tags: | | | | | | |

Podcasting a Screencast about an Umlaut

Today we have a great new word that is both a neologism because you won’t find it in a dictionary and it is a portmanteau because it is a combination of two other words. It is screencast.A screencast is a recording of a computer screen. It is usually narrated. Screencasts are often used to explain or demonstrate a software feature. For example if you want to see how I record my podcast I there is a link to a screencast of me recording this podcast.If you want to see a more interesting screencast check out Jon Udell’s screencast of the history of the Wikipedia article on Heavy Metal Umlauts. By the way Jon coined the term screencast just last year and the umlaut is the two little dots above a vowel. Jon’s screencast is wonderful. It demonstrates how articles in Wikipedia grow and change. The light hearted subject of heavy metal umlauts is also very entertaining. Fans of Spinal Tap will particularly appreciate the screencast and the article even though they don’t go to eleven.Screencast cionI used the freeware Windows application Wink to create my screencast. The result is a Flash file which seems to the screencast file format of choice. If you would like create your own screencast check out Jon’s Screencast How To over at O’reilly.I am still looking for a more descriptive name for Today’s Podcast. Please help me with some suggestions.

I never knew I was an ADR editor and a podcaster

Play


podcast-logo.png
Today’s word is actually just initials. They are A.D.R.. And they have been haunting me for years now. When I see a movie at the theater I like to stay and watch the credits. I think it is interesting to see how many people it takes to make a movie and what interesting jobs they have. Like a gaffer, a best boy or the second assistant to Ms. Jolie’s hairdresser.

Now ADR always comes up with all the audio related jobs, but I have never figured out what they stand for. Well they stand for Automatic Dialogue Replacement. The ADR editor is the person who is responsible for rerecording the dialog tracks in a movie. This is usually done when the original scene was recorded with too much background noise. The actors watch the film and their lips while rerecording their dialog.

This editing it is also done to change the actual dialog or inflection of a line. In these cases the scene probably can’t reveal the actors lips moving to the wrong line.

Next time you are at the movies take an extra five minutes and read the names people who made the movie and see who the A.D.R. editor was.

Del.icio.us Tags: | | |

How to subscribe to Today’s Podcast or just listen

Play

You can listen to any podcast by just clicking on the podcast icon. In most cases your browser will begin playing the podcast. In some cases your browser may fire up a helper program that will play the podcast.

To Subscribe—And this is what makes an recording a Podcast:

Subscribing is free.  Subscribing just mean that your news reader or iTunes will automatically retrieve the latest posts.  You can subscribe with iTunes, NetNewsWire, Google Reader, My Yahoo!, or most any news reader.

The URI for the Today’s Podcast RSS feed is http://todayspodcast.com/feed/