Inverse function and Speculation: Difference between pages

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1. ''Risk.''
Any risk taking activity or decision which depends for its favourable result on market rates or prices. 


A mathematical function which reverses another function.
For example, a decision to leave a natural operational exposure unhedged, or a decision not to buy a relevant insurance contract.


For example the square root function x<sup>(1/2)</sup> is the inverse function of the square function x<sup>2</sup>.


Another example is the Natural logarithm (log to the base 'e') which is the inverse function of the exponential function e<sup>x</sup>.
2. ''Market manipulation.''


Intentionally creating market positions - for example by buying or selling assets or derivative contracts - in the hope of making profits from favourable changes in market rates or prices.


2.
For example, buying an asset in the hope that its market price will rise in the short term.


The function 1/x, also written x<sup>-1</sup>.


(As it happens, the inverse function of 1/x - in the first sense above - is itself, namely 1/x.)
3. ''Market pricing.''
 
Similar position-taking activity which depends for its favourable result on there being no material change in prevailing market rates, prices or conditions.
 
For example, selling straddle options (being one of the speculative activities undertaken by the Barings Bank ‘rogue trader’ Nick Leeson).
 
Another example would be a decision to operate without committed credit lines, or a decision to ride the yield curve.




== See also ==
== See also ==
* [[Exponential function]]
* [[Arbitrage]]
* [[Natural logarithm]]
* [[Bubble]]
* [[Calendar effect]]
* [[Carry trade]]
* [[Day trading]]
* [[Default]]
* [[Forward contract]]
* [[Futures contract]]
* [[FX instrument]]
* [[Hedging]]
* [[Investment]]
* [[Market manipulation]]
* [[Naked]]
* [[Riding the yield curve]]
* [[Risk management]]
* [[Rogue actor]]
* [[Rogue trader]]
* [[Speculative]]
* [[Speculator]]
* [[Straddle]]
* [[Uncovered arbitrage]]
* [[Uncovered interest arbitrage]]
 
[[Category:Financial_risk_management]]

Latest revision as of 01:03, 13 March 2023

1. Risk.

Any risk taking activity or decision which depends for its favourable result on market rates or prices.

For example, a decision to leave a natural operational exposure unhedged, or a decision not to buy a relevant insurance contract.


2. Market manipulation.

Intentionally creating market positions - for example by buying or selling assets or derivative contracts - in the hope of making profits from favourable changes in market rates or prices.

For example, buying an asset in the hope that its market price will rise in the short term.


3. Market pricing.

Similar position-taking activity which depends for its favourable result on there being no material change in prevailing market rates, prices or conditions.

For example, selling straddle options (being one of the speculative activities undertaken by the Barings Bank ‘rogue trader’ Nick Leeson).

Another example would be a decision to operate without committed credit lines, or a decision to ride the yield curve.


See also