(Un)Calculated Risk | by Peter Orr of Intuitive Analytics

Munis Plus Bad Modelling Yields Option-Adjusted Nonsense

Posted by Peter Orr on Dec 11, 2015

“Everything should be made as simple as possible, but not simpler.”   - Albert E

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MSRB: On MA exam, what is “Forfeited Option Value” in a Refunding?

Posted by Peter Orr on Jun 06, 2015

“Any measurement you make, without knowledge of its uncertainty, is completely meaningless.”

- Prof. Walter Lewin, MIT Physics 101
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3 Things that Drive “Advance Refunding Option” Value

Posted by Peter Orr on May 12, 2015

Essentially, all models are wrong, but some are useful.

- George Box
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Why this is the Best Refunding Policy Ever

Posted by Peter Orr on Apr 10, 2015

"I don't think necessity is the mother of invention. Invention, in my opinion, arises directly from idleness, possibly also from laziness - to save oneself trouble."

- Agatha Christie
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Why Corporates don’t get Munis – It’s Refundings, Stupid

Posted by Peter Orr on Mar 14, 2015

Yesterday I spoke at a luncheon (many thanks to MAGNY for a great event) where, during Q&A, a number of people commented on how difficult it is for those who grew up doing corporate bonds to try to cross over into muni-land’s veritable Oz. With all the talking trees and flying monkeys, munis can be pretty disorienting. And I’ve seen it happen many times myself; graveyards are indeed littered with the corpses of corporate types who come to munis and just never get it, both on the buy-side and the banker/sell-side. They show up bright-eyed and bushy-tailed talking about “benchmark this” and “OAS that” but ultimately wind up crouched in a corner mumbling something about 5 and 10 year bullets.

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New Tech for Investors: Refunding Adjusted Yield (RAY)

Posted by Peter Orr on Mar 06, 2015

“I have two ways of learning from history: from the past, by reading the elders; and from the future, thanks to my Monte Carlo toy.”

- Nassim Taleb, Fooled by Randomness
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Why Option Pricing Models are Wrong for Tax-exempt Issuers (Part 2)

Posted by Peter Orr on Feb 06, 2015

In Part 1 (a suggested read if you’re getting to this article first) we proposed 3 questions that determine whether bond option pricing models, in contrast to real-world option models, are appropriate for tax-exempt issuers analyzing their callable bonds:

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Why Option Pricing Models are Wrong for Tax-exempt Issuers (Part 1)

Posted by Peter Orr on Feb 03, 2015

"It's not how we make mistakes, but how we correct them, that defines us."  - Anonymous

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The Right Analysis for Refundings – MSRB, Take Note

Posted by Peter Orr on Jan 29, 2015

We see a lot of confusion in public finance as to how to analyze refundings. Unfortunately I think much of it stems from people outside of public finance coming in without a complete understanding of the environment in which a tax-exempt issuer operates i.e. the muni market. These interlopers get excited when they see option specifications in an official statement, then cry out, “We’ve seen these before. We have fantastic models used everywhere else, they must apply here too!” Unfortunately the foundational assumptions underpinning these models do not exist in the muni market leading this statement to be bunk (technical term my father used to use…). In fact those elegant bond options models do not apply in the muni flea market.

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Refunding Adjusted Yield (RAY) Shines Light on Issuer Financing Cost

Posted by Peter Orr on Jan 23, 2015

It’s 2015. Watson vanquished humans in Jeopardy 4 years ago and is now rapidly moving towards replacing as many oncologists as possible. Google is just one company running driverless cars and trucks around everywhere. Facebook is trying to monetize every eye twitch you make looking at a web page. Let’s check in on innovation in public finance:

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