Wednesday, August 24, 2005

Economic Derivatives

I was just browsing and chanced upon what looks like a new form of derivatives - Economic Derivatives (Goldman Sachs: Economic Derivatives). It seems like the underlying for these instruments are economic indicators. The advantages are of course that one can avoid basis risk - meaning making a correct assumption on economic indicators , but then not understanding the impact those can have on a different variable such a stock price or bond portfolio.

Interesting. Now how does one model economic indicators?


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