ExperimentalFinanceLecture-7F

ExperimentalFinanceLecture-7F - Experimental Finance IEOR...

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Experimental Finance IEOR – Spring 2012 Mike Lipkin, Pankaj Mody
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Experimental Finance Mike Lipkin, Alexander Stanton Page 2 Lecture 7f Hard-To-Borrows Today I want to discuss a difficult, and often very lucrative but scary group of stocks. These are called: hard-to-borrow . Before I do that, I want to spend some time on the projects. I want to deal with subjects, approach, requirements and presentations.
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Experimental Finance Mike Lipkin, Alexander Stanton Page 3 Lecture 7f Hard-To-Borrows Remember what you are attempting to do: Thinking about volatilities and how they expand and contract and change under differing circumstances, or Thinking about prices and how they couple amongst stocks in time, or Thinking about relationships between volatilities or prices across strikes or series. Almost certainly you will be doing something involving these points.
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Experimental Finance Mike Lipkin, Alexander Stanton Page 4 Lecture 7f Hard-To-Borrows If you are looking at values (for a trade) across time, you should be honest and work in the risk-neutral metric. How? By hedging positions daily and keeping track of the P+L in the hedging instrument as well as via the options. Keep a careful eye on time scales – a frequent theme in this class – so that you do not mix apples and oranges. Be honest about your selection methods for prices. If you use mbbo, how accurate are your results (as opposed to buying the bid, selling the offer)?
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Experimental Finance Mike Lipkin, Alexander Stanton Page 5 Lecture 7f Hard-To-Borrows Format suggestions for the Presentations Identify your group Motivation for your project What IVY experiment you performed How the data was utilized and analyzed What the numerical results were What conclusions you could draw Remember you don’t need to have found a tradable result, negative results are acceptable; be honest and thorough Clarity is very important Only 30 minutes per presentation so be succinct.
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Experimental Finance Mike Lipkin, Alexander Stanton Page 6 Lecture 7f Hard-To-Borrows The PP presentations, the coding, an outline of the steps taken to analyze the data, and anything else needed to reproduce your work, should all be sent to Pankaj and Marco, zipped if necessary. GOOD LUCK!!
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Mike Lipkin, Alexander Stanton Page 7 Lecture 7f Hard-To-Borrows Certain stocks have limited floats . Because of current [misguided, in my opinion ] regulations, stocks may only be shorted if the seller finds a lender. Clearing firms act as clearing houses for supplies of long stock. If a clearing firm cannot borrow stock to cover short holdings, then traders with short positions are subject to buy-ins , where the clearing firm acts to force a covering purchase on the trader’s account. There are several consequences of these
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ExperimentalFinanceLecture-7F - Experimental Finance IEOR...

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