We look at everything. We don't get scared because of the complexity involved. But we examine it to death.
Due to my inexperience, I placed a great deal of reliance on the advice of market professionals ... I wish I had more training in complex government securities.
I don't care how big your computer is, you can't get your arms around them.
Complex derivatives, which incorporate elements of path-dependency or correlation, will always be around. But if you define exotic as ‘fancy for fancy's sake,' then that's pretty much gone.
If a deal was mathematically complex in 1993 and 1994, that was considered innovation. But this year [1995], what took you forward with clients wasn't the math - it was bringing them the most intelligent application of a product.
Japanese banks have shown a talent for adapting to accommodate lower yields and higher rates. For example they recently created the 100-year home mortgage, lending new meaning to the idea of mortgaging the futures of one's grandchildren.
The best advice may be this: treat exotic derivatives like powerful medicines, large doses of which can be harmful. Use them in moderation, for a particular purpose (such as risk management) and only after having read the instructions on the bottle.
Too many of us have reveled in the complexity of these products.
Exotics are not going to go away.
There are no more great strides to be made in financial engineering. From here on in, changes will be evolutionary rather than revolutionary ... No one could have ever envisaged where the derivatives markets would lead us today.
An exotic option is like pornographic literature. First of all, I may not be able to define it, but I know it when I see it. Second, the definition depends on community standards, which depend on time and place. For example, the unexpurgated version of D. H. Lawrence's Lady Chatterly's Lover was available in Florence in 1928 but only reached London in 1960.
That fancy equity index double-knockout structure with added pelvic thrust that you're so proud of? Ancient history to the guys in foreign exchange options.
Last updated: January 9, 2011