Reminded of Hidden Conditions and the Origin of Hedging
Suddenly I hear what I think is an explosion just outside my door. I run out to see what it is. My neighbor had just parked her car inside her solid garage, but inside the garage she almost got hit by a car. A new BMW had just gone through her fence on back side and then almost through wall. Unlikely and completely outside most people’s probability distribution, this was also outside my probability distribution....
A tree was taking most of the hit... in the old times they built solid hedges sometimes even using trees!! at that time to protect agains cattle and wild annimals, but it also works for wild BMW's......recommended literature : Caldwell's 1870: "Treatise on Hedging"
From Preface: "His expereince has thought him that there is no one subject of such vital importance to all classes of our fellow-citizens as this subject of Hedging."
Just as true today as it was then!!! I am not sure what would have suprised Caldwell most if he could travel into the the future(that is the present): Hedging actively used for volatility swaps, or his old hedging method working well agains wild BMW's in the hedge fund capital....the world is always changing, but the main principle of hedging stays the same!
