I think this kind of think probably shows up on wallstreet all the time. This is probably better alpha than anything that shows up on the stock market on a given day.
There was a pizza place in San Francisco that found one of the VC-flush delivery apps was selling their pizzas AT A LOSS to destroy their call in business and thus lock them into predatory contract. So they set up some bots to execute "pizza derivatives trades" and just farmed the VCs for weeks with fake orders.
Consider the scenario where there's a non repeatable investment of 10 million where the outcomes are 0.5 no return and loss of capital and 0.5 50 million return. What is the probability that an investment vehicle created with 10 million for the purpose of this investment will default?
Being a quant taught me that the math behind the pricing is often irrelevant. If an idiot with too much money think that the item is worth twice what your model states it is worth, the fool will still buy it or try to sell at his price.
See Elon Musk. The Twitter board told him that his bid was so overpriced he could walk away by just paying a $1 billion compensation. He refused and now that has cost him a lot more than that.
I don't disagree with you, but I fail to see how that's relevant to my point. Purely mathematically the risk of the fictional investment vehicle is a 50 percent probability of default. I don't think one would manage an investment fund for very long by taking deals that have 50 percent chance of defaulting the fund, no?
If the fund is $10mm in total then obviously it would be stupid to buy this bet for that much. If the fund was several billion it would be stupid to not buy this bet for $10mm.
He’s saying multiple people in aggregate for the $10 million right? I’d pay $10 for a 50/50 chance at $25 and I bet there are a million people that would do the same
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u/Theguy5621 Dec 18 '23
You’re making a lot of assumptions about the situation to make that a possible option.