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Vineer Bhansali

lines on the record: 45
first: 2025-09-13
most recent: 2025-09-13
sittings or episodes: 1
sources: podcast

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“Absolutely. I think finances existed from the very, very beginning because it's based on the two fundamental emotions, right? Fear and fear, right? So as long as there's greed and fear and they're smart people around. And again, going back to math and physics, it's not so much That the toolkit itself is teaching you anything special, it's just it teaches you to think in a discipline logical fashion. And I think with tools like what we're seeing with AI and so on and coding becoming completely democratized, I think the ability to ask important questions rigorously becomes even more important. So I think it's going to be even better than it's been.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so actual cash, you play with dollar bills, but if you're playing 24 rounds, they're not in enough dollar bills drawing around. I never thought.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Was a big part, yeah, at that point. You used to spend after the trading day was over every day. We would print out randomized Lyr Spoger sheets, usually about 24 or 30 of them, and we'd play about 30 rounds every day.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“I was actually pretty good, I think, I mean, I learned it after I joined Solomon Brothers as a good group of people. And I think the first year, maybe I lost a bit, but I think in the third year that I was there, I won it. And I was actually, I think the one who took the biggest part. And also my boss gave me his 18 foot fishing boat where he was buying a new one as part of the settlement that I moved in.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“But at some point it has to also equilibrate. So in my view, it has not been priced in. Maybe it's too early to price in because maybe the Fed does not lose its independence and rises as Phoenix from the ashes. But I'm a little bit pessimistic about it.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Not yet. I don't think so. Maybe a slight amount of premium has gone up, but one of the most striking features of the system is that if you look at the treasury yields, look at the 30-year bond today's 470, but you look at the 30-year interest rate swap, it's trading at, believe it or not, 389, right? So it's almost 85 basis points under the U.S. Treasury. Now, you ask, why would somebody take the swap market at a lower yield? And I've been trading swaps since its inception back in the 1990s. Swap spreads are negative 85. And that goes back to the receiving of interest rate swaps to hedge liabilities by a lot of large institutions. So they have certainly not priced in inflationary effects into the swap market.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, exactly. And I think to take that point one step further, so correlation has been the greatest gift since the mid-80s to 2020, right? So you've got stocks and bonds just say 60-40. Stocks went up, bonds went up, and they were diversifying, which is what a beautiful place to be, right? It sounds nice. So that was a freebie. And again, this goes back to financial gravity, so to speak. That state of affairs, that free lunch should not exist. So I think we might be entering a phase where stocks and bonds maybe are actually not diversifying. And you have to look at other things. Gold, of course, as you mentioned, maybe Bitcoin. Who knows? But I think the fact that reliable insurance or portfolio protection is so available today using the options market to me would be the place where I would look.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“To its own limit, but there are certain things that have happened in our system where we are at a point now where gravity, so to speak, of the financial markets are going to have to take over.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think a lot of it is actually non-quantitative. And what I've learned, even though I come from a quantitative background, is not the math itself, but it's the sequence of logical arguments that you can make to get to a conclusion. So for instance, we knew even before fancy mathematics was discovered, Lagrangians and so on, that gravity exists. Gravity's existence has been known before maybe math was invented. But gravity has been there. And so I think there's some central laws of finance which will still continue to exist regardless of the mathematical modeling of them. And the Bill Gross, when I used to work with him, he used to say some things we can take for granted. I'm paraphrasing it, but the steepness of the yield of the fact that the yield curve needs to be upward sloped for the financial system to function because people lend money in order to get something in return. Those are not mathematical devices. Those are really just the way the capitalist system works. So I think you can take the quantitative modeling.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, inflationary risk. And I think one of the best option trades, again, this is not a direct option. So going back to what you were asking before, you don't always just have to pay premium. The yield curve steepener where you buy the short end of the yield curve and you sell the long end of the yield curve. Today you can do it through using swaps and all that for essentially zero net carry. So here's an option, very similar to shorting the negative yielding bond market in Europe a few years ago where if you put a yield curve steepener on either in a hyperinflationary, maybe not hyper, but a lot high inflationary scenario or in an aggressive Fed cut, the yield curve steepens. So yes, so that environment is an environment in which the curve steepener could work. And yes, my zeroth order prior forecast would be that if we lose explicit independence of the Fed, the yield curve actually steepens a lot more.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“I think for me, the biggest risk right now is what people have been talking about is the so-called, and I call it the Fed independence paradigm shift, because I don't believe the Fed was ever really fully independent. But now it's coming to the fore that the fiscal and monetary authority there actually won. So what happens in the aftermath if the Fed actually becomes part of the central government, the fiscal authorities? I think at that point, all bets are off because that's the one anchor that everybody, whether realistically or not, has held on to but if interest rates can change just based on the need to finance something that totally upside downs the financial system. So to me, that's the single biggest risk right now.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. So the system is very levered, and then corporate credit clearly is very, very concentrated. We all read about payings and so on. But corporate credit, based on the Merton model, again, that connects equities to corporate credit spreads is also leveraged to the stock market. So the stock market suddenly had a big sell-off. Corporate credits widened out, which is the real problem, right? Because if corporate credit widens out and the cost of borrowing goes up for all the corporations, maybe not the Fang stocks, but the 493 other stocks, then how does the system produce? Because our whole system is based on borrowing. And I don't think very many companies in the US can function if your cost of operating your business was 10% a year.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“I think you have a big problem, right? So not only is the stock, the whole system, 401ks and public pensions, they're all levered up to the stock market because that's the only way you can get to your 7.5% or 8% actual yield. So if the stock market doesn't keep going up and keep delivering those kind of returns, it's very hard to get to that point. Maybe if inflation rises, at least, again, cosmetically, maybe the long bond gets up to 7% or 8% and everybody can just lock it in and immunize and you're there. But in real terms, you're not going to have the income that you need 30 years from now to retire.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Alchemy absolutely is the one which promises to work but doesn't work, right? So a lot of people try to reduce your cost by creating synthetic strategy. I already mentioned futures markets aren't very deep when you need them, but there's a lot of strategies which actually use a futures replication strategy like the 1987 crash also purported to do. And those strategies typically don't work. And so there's many that promise and they look like they are cheaper and they don't cost any bleed, but they also do not deliver, which again, going back to April 2nd, the only thing that worked during that April 2nd to April 8th period was reliable hedging using index options. Nothing. Duration didn't work, trend following didn't work, a lot of other altruist premium strategies didn't work. So that is the Cardinal's thing. You just do not have the luxury to go to the constituents, your clients, whoever's bought it and said, you know, we're trying to be too smart and ooped.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, definitely. So it goes up to the highest level where this becomes part of where you guys started portfolio construction. It's an asset allocation decision. It's not a trade. So the context has to be that if the agents are lined up, meaning boards and trustees and so on, they think of this decision as protecting the portfolio or making a more robust portfolio as part of the DNA.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a cosmetic yield, your decorated yield. So to me, the yield is not justified by the risks that underlie it. So there's various instruments that you can use in creative portfolio of these types of hedges.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“You can buy those put options, but people who are not willing to pay a lot of continuous premium, you can do more sophisticated tricks where you can buy indirect hedges. For instance, credit default swaps today. The CDX index, if you don't see the charts, it's actually tighter than it was pre-GFC. It's the tightest it's ever been because people are buying it for cosmetic yield reasons. So there are a lot of derivative industries. What's cosmetic yield? Cosmetic yield simply means that the total yield. If you look at the yield of a corporate bond today, it is basically treasury yield plus some spread. So the treasury yields are at 4.5%, 4%, but the spreads are actually very tight, only 50 basis points on the CDX. So you're getting a 5%, 6% yield, which in the context of where we were three years ago looks like it's cosmetic. It's cosmetic. I think it looks good. It looks good. But it's actually, you are taking that drip.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“20% in order to raise liquidity for distribution, they would have to actually sell seed corn. So it's really, really bad. So that's an existential risk that you want to quantify. So the first thing that you do is you figure out what that risk is, a full distribution of outcomes. And then you look at the instrument set that's out there in the marketplace, starting from the most reliable and, surprisingly enough, like Joe mentioned already, the cheapest one, which is equity option volatility.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think this is where the first principles of thinking becomes really important. So you have to look at every portfolio is different, right? So one of the other mistakes I think people make is they think you can just pick up finance one-on-one book and say every portfolio is identical. It's all risk neutral and everybody's exactly the same. It's just not the case. Public fund that has a 40% or 50% funded ratio is very different than a 90% or a bank that's 120% fully funded. So everybody has different needs. The first thing that you do is you look at the underlying portfolio's posture, how much loss can you take? Look at the systemic risk shocks that they can actually withstand. So you run a shock, you run a full distribution analysis and figure out what is the outcome under which they will be under so much distress or so much duress that they might end up having to liquidate assets. And there are actually quite a few like that right now where if the stock market went down 20% and privates went down about”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so this is great. So if you could guarantee that this asset class would keep growing always, then you would 100% be on staff only. Now, what bonds traditionally used to do was they provided you with income that when the stock market wasn't doing well, at least you wouldn't go completely broke because you would have some yield. But I think it got taken to an extreme, right? I mean, the greatest example, and I wrote a whole book on this topic, is the European Central Bank followed the Japanese central bank and then they start buying at negative yields. And they convinced all the indexers to keep buying bonds with them. Think about this. You were buying bonds, meaning you were lending somebody money and you were paying them interest. And at that point, diversification is an insult. I mean, you don't want to buy negatively yielding bond along with stocks because it does nothing for you. And we're living the consequences of it today because the bond market over the last five or seven or ten years even has had absolutely dismal zero returns.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think if you can get over the regulators, I think we are living in a world where mark-to-market, daily, NAV, et cetera, for ETS and full transparency is required. But I do think one very sophisticated institutional investor who was a client of ours actually said I would pay you more if you sold me a product that actually had a longer lockdown”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“It's just negative, whatever. Negative, 100%, right? Every single year. So would you quit buying insurance? You won't because home insurance or car insurance is not an investment. It is the cost of doing business. So that's the context in which one should think about tail risk hedging is it allows you to first protect yourself from yourself in the bad events. And then secondly, when the markets are down, the value of those hedges going up allows you to buy assets on the cheap, which results in compounded growth.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“With people's behavioral function is that when the markets collapse, they forget their plans and they liquidate. So what tail risk fundamentally does, it's not a fund that you should look in isolation and say, is this fund good performer or not? Just like you would not go back home and say, well, what was the total return on my home insurance policy?”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“This is very simple, and I've been trying to do this. This is actually one of my missions since I started our firm, is not just managing the risk, but also trying to educate people on what the purpose is. Its purpose is very similar to insurance, and not everybody needs it. If you don't live in California, earthquake-prone zone or in Florida, hurricane-prone zone, you don't need the insurance. But if you're going to run a large equity-heavy portfolio, and by the way, equities have demonstrated over the last 100 years and maybe going forward are the one way to create long-term wealth because people go to work. The first thing I learned when I was a citibank from my boss told me was just look at log GDP versus log S&P. The charts are aligned. Basically, people work, the market goes up. So what that means is that you need to be invested in the stock market. And the more you invest in the stock market, the more likely it is that you're going to make higher compounded returns over time. But also you will suffer big drawdowns. And one of the biggest problems”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Both in terms of people's response function and how quickly things happen. So one data point that I can relay is since I started trading is in the past when crises would happen, even including the GFC, which I lived through and did fairly well, it used to take months, maybe weeks for things to correct. And you had time to plan and time to execute. Then Valmagerin maybe took a few days. 2020 COVID, it maybe happen in a few days to a few hours. And then starting this year, it feels like things are actually happening on an hourly to maybe minute basis. For instance, in April, when the big crash happened and the correction happened, all the action, including some of our trading, happened in the pre-pre-market. So the markets had not even opened up. And if you needed to do something, you had to do it during the night session because that's where all the action was. So I think that's one fixture of what's going on right now is that stuff is happening much faster.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think one of the things that is going on is we are slowly undergoing a regime shift. And I like to always paint this picture, and I'll come to your question right after I give you this big macro picture from the 60s to the 80s, 60 to the mid-80s, you had this period of rising inflation, rising volatility, non-credible central banks, and stuff was kind of breaking and people were behind the curve. Then you had the Volcker increase of interest rates starting in the 1980s. And until the maybe late 20s, 2020, call it 2021, COVID was an accelerant. You got negative yields and falling volatility, credible central banks and so on. And I think we've actually turned the corner again. So starting in 2021, I think we are probably going to look more like the 60s to 80 than 1987 to 2020. Now, having put that backdrop in front of us, I think the issue really comes back to, yes, there is a regime shift.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Trying to delta hedge it yourself is like literally trying to put an elephant through the eye of a needle. People just cannot work out. I mean, I just can't imagine the market collectively trying to get through that needle these days. There is just nothing there.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, as a creator, this comes back to the role of options fundamentally, right? So what do options in the world of quantitative finance, you can take an option, you can replicate it by doing delta hedging and so on. Basically looking at the partial derivatives of an option pricing equation. Or you can say, I'll just buy the option. So an option is a contractual agreement between you and the option provider. So if there's illiquidity and you believe this is a fixture of the environment that we're going to live in, then there is no other way than to actually have a contractual agreement with somebody where you're delegating the illiquidity risk to them. And so you are buying it when the premium is cheaper.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Which is just a fixture of the markets today. It looks liquid. And when you don't need it, it's there. But if you need it, it's not there.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Is that starting maybe about 10 years ago and somewhat surreptitiously, the market morphed from human market makers. So when I started trading, it was human market makers. I still remember when I was in the 1990s, Tommy Baldwin on the pit of the CBOT floor Chicago Border Trade floor, you would do a trade and Tommy Baldwin, and he was legendary, obviously, he would lift his hand up and the market would stop and turn and go the other way. Humans could do that. What has happened surreptitiously or very strangely over the last 15 or 10 years maybe is that the human beings have sort of left this market making area and 90 plus percent is being made by bots and what bots know very well self-survival is extremely important to them is as soon as they see a liquidity tidal wave coming, tsunami coming at them, they just get out of the way. The liquidity just becomes very episodic. And Muhammad Alarian used to call it latent illiquidity.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“In this case, the iminifutious contract are basically a speculation vehicle. They're a cash equitization vehicle. So they serve a lot of different purposes. But I think the biggest thing that's going on here”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, you can make it more or less sophisticated. I mean, it's a little bit, naive to say it's only wall selling, but wall selling is a very important component of it. And there were some great papers by people from AQR who took every asset class, so equities, bonds, credit, foreign exchange, and then also sliced it down in various types of strategy, style, and quality and momentum and so on. They made like a 16 by 16 matrix. And then they recreated this what I consider to be more sophisticated sounding wall selling, but it really is wall selling. And what people do, just to be very clear, is it's not just wall selling. They also layer on other things like trend following on top of it to create a counterbalance. To the ball selling because trend following is naturally ball-liking or ball long ball type of strategy.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“And then over time, it has now gone to all the do-it-yourselfers. So all the wealth offices and family offices and large endowments. And this whole area, which is now called alternative risk premiums, is based on this idea that you can go and sell volatility in various forms, explicit forms or implicit forms, to generate income. Everybody's doing it”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Clients at that time about volatility selling, harvesting wall premiums, and so on, which did end up adding quite a bit of, as Bill calls it, structural alpha to the PIMCO portfolios. And 20, 30, 40 basis points every year. What happened is that everybody got educated and it became part of the academic lore and everybody realized it. There was a lot of crowding. And it's a little bit like selling insurance, right? So when you find that one insurance policy selling works, then you say, why don't become a multi-line insurance provider? So you start selling insurance policy on everything. And so what has happened now over my career, it has gone from institutional selling where first it was hedge funds, then it was large, sophisticated mutual funds like Pimco, who could actually still fit it inside of the mutual fund complex because selling naked options is not really allowed unless you cash back it. Right.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, a great little side point there. So, Bill and I've been great friends. As a matter of fact, I went to Pimco because I heard Bill speak at a talk when he was advertising in book back in 2000. And Bill's an amazing genius, great investor. And one of the best compliments I got recently, I was communicating with him and he said, I have your paper at the top of my reading list. And I said, which paper bill? And he said, this paper that I wrote with Larry Harris on the volatility selling ecosystem that basically grew up before 2018. So yes, so Bill actually, in a sense, invented this whole idea of selling volatility in fixed income, especially through buying mortgages or explicit selling of straddles and strangles. And what we realized, and again, I was head of analytics at FIMCO over the last over 15 years or so, I was there, I got to see and help him manage the quantitative risks of those portfolios. We ended up educating a lot of our”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“The options market reacting to the delta then results in new hedges coming in. So this feedback loop gets tighter and tighter and tighter until something breaks. And when something breaks and the bot shut down, which is today's environment, you actually have no liquidity. And that's when you get these crashes like Liberation Day on April 2nd.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“There's an idealization in mathematics or mathematical finance that you can do this at an unlimited size and size doesn't matter, but it matters. Liquidity is actually not there. The basic assumption of black shoals is that you can continuously trade with almost zero transactions costs. Well, that's just not true in real markets. As a matter of fact, in the last maybe two years even, you've seen liquidity in the e-mini futures contracts, which are possibly the, I would say, the zeroth order hedging instrument for the equity markets go down relative to the high levels, frequently go down to maybe 120th or 150th office level. So people just can't get out. So what happens is that people sell options, then they start delta hedging, delta hedging results in”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Oh, absolutely. And this is a very important question because if you fast forward to 2018, the big XIV debacle and the Vol Mager and a lot of things that happen now. And actually fundamentally what we do now, what I do now, is related to this fact that there's a very tight feedback loop between models and markets and models. I'll give you a very simple example, right? If you have an option that you've sold to somebody and you have to manage the risk, of course, when you sell the option, you're getting a volatility premium. That's why you sell it. You're getting an insurance premium, so to speak. But then to manage the position, you have to delta hedge. But delta hedging means that you have to buy and sell the underlying asset and some higher order Greeks as well, gamma, vega theta that you've all read about. But delta hedging requires people to be able to buy and sell so that they are the seller, the market maker is locally flat, of course. So the market maker, that's what you do and that's how you earn your fees, so to speak. The problem is that”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“So from the modeling side, it's pretty straightforward, right? The Black Scholz equation and stochastic calculus, stochastic finance is basically what's called the heat equation or the diffusion equation in physics. And that's something that every physicist learns when they're in early graduate school. It's like solving a partial differential equation. So the math is exactly identical. The math of finance. And maybe that's a problem actually in retrospect now that having done this for 30 years and 30 plus years and survived, maybe that's the problem because the beauty can somehow hide the frictions underneath it. From the trading side, when I first started trading, I think it was very simply.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, yes, yes, we'll get to that exactly. So February of 1994, the Fed raised rates by 25. And then very surprisingly, April 18th of that year, they did an intermeeting increase. And at that time, bond market really sold off quite a bit. And I just did what human beings do, which is bet on mean reversion. So I tried to buy the bond market and tried to buy the bond market again. And again, and again, until I realized that there's something called trend following and exit. And I think the bond market sold off a good 15, 20 points. And finally, I recouped it all, but it was brutal few months of literally getting my face ripped off.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, the 1994, if you remember, in a 1993, the Fed had eased and rates were quite low and everybody was long the front end of the yield curve and buying euro-dollar futures contracts.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“So interesting. So, the modeling served me at those days seemed a little too naive. So for instance, I'll give you an example. Very first trade that we did, large trade. I was at Citibank at the time and it was an interest rate cap on yen interest rates linked to the dollar yen. So it was basically a two-factor option called a hybrid option. And it turned out that as a physicist, I was very easy, it was very easy for me and I was very able to write a Monte Carlo to write this knockout cap. But for the finance people, it was kind of tough. So the math was very easy. But I also learned that trading is not just math. Trading is a lot of behavioral stuff and so on. And that I just obviously had to learn. And I have some great stories of stuff that I did really badly back in 1994.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, one was a research job at Goleman and a job at City was actually trading derivatives. And since trading was so far away from what I knew, and this was really supposed to be a vacation for me for about a year, not like a good thing to do, for fun thing to do, rather.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“It was Fisher Black who was in a realm. Oh, wow. I decided, you know, black show's fame. Little did I know. When I turned that job down from Goldman, I took another job at Citibank trading derivatives because in my mind was Sabbatical I was going to do this for about six months to a year and then go back to physics. Well, little did I know that my whole life would become basically very deeply connected with option trading. So that's what I've been doing. And we'll talk a lot more about theodor sketching in a second.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yep, I started out as a theoretical physicist. I was finishing my PhD at Harvard. And this is 1991. The recession had just hit. I didn't know what a recession was. I wanted to be a professor. But my job evaporated because I was going to go work at the supercolliders, the superconducting supercollider that got canceled by Congress 1990s. I had a postdoc lined up in France and won, I think it was in Texas, in Austin. And I got a call out of Wall Street out of Goldman. They were looking for quants like me to work on options trading or options model building rather, I should say. So I went and interviewed mostly because of a free trip to New York went there, got interviewed by an elderly gentleman who was taking notes saying doesn't know any finance for disclosure. I knew no finance, I had no interest in it.”
2025-09-13 · Odd Lots · Vineer Bhansali on Losing Fed Independence as the Biggest Tail Risk Right Now · IDENTIFIED FROM THE TRANSCRIPT · source