08/27/2007

G/L	10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

6.9%	3.0%	1.9%	19.3%	56.2%

Keep close eye on the 99%VAR...

Lloyd's of London

http://en.wikipedia.org/wiki/Lloyd's_of_London

For most of Lloyd's history, rich individuals ("Names") backed policies written at Lloyd's with all of their personal wealth (unlimited liability). The losses in the early 1990s devastated the finances of many Names (upwards of 1,500 out of 34,000 Names were declared bankrupt) and scared away others.

======================

Names (rich individuals) of Lloyd's of London are not required to put down any money to underwrite the reinsurance policies. While their money earns great returns from stock market or real estates, Names get additional income (insurance premium) at the same time.

This strategy worked great until unexpected huge amount of insurance claims showed up. Those claims squeezed not only the insurance premiums, but also their own capital.

Isn't the index gambling strategy just like that employed by the Names of Lloyd's of London? Selling insurance policies for income can generates decent cash flow, but it is not without risk. The risk can potentially eat up all the working capital.

======================

08/26/2007

G/L	10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

6.8%	2.0%	1.6%	13.4%	38.2%

Reduced Risk (esp. 99%VAR) ...

Investment Landfill

Investment Landfill:
How professionals dump their toxic waste on you
http://goldnews.bullionvault.com/files/Investment_Landfill.pdf

==================
Excerpted from above:
==================
"You used to have to give me all your money to buy a boring old cash flow CDO, and then you were both lending your money and accepting the potential risk of the borrower defaulting. What I have for you today is the ability to accept only the better half of that deal.

"This new instrument means you can keep your money where it is, earning great returns in the stock market or wherever you're currently chasing performance, yet you will still receive income in return for underwriting the risk on a package of credit default swaps in the mortgage-backed security market.

"Look, I've got a great credit rating on this thing, and because we have eliminated the cash-borrowing aspect of the deal, I can sell you $1 million of synthetic CDO income for just $200,000.

"You get no extra risk above what you’d ordinarily accept, and a huge yield on your investment. You want in?"

August 2007 Result

August 2007 Return: -35.0%

A bloody month!

I need to re-think this strategy...

The loss is so deep that it is hard to write a reasonable review at this time. Reviews and thoughts will be posted at later time...

2007/08/08

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

4.2%	0.0%	26.4%	90.7%

2007/08/06

Reduce risk, cut loss...

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

9.3%	9.0%	46.4%	87.5%

2007/08/02

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

8.6%	3.5%	46.3%	108.5%