Posts tagged with price

data from the US Drug Enforcement Agency’s System To Retrieve Information on Drug Evidence

A few points about these pictures which I’ll be elaborating on in future posts:

  • sub i, sub j: There is significant variation from city to city and presumably dealer to dealer or customer to customer, since they plot interquartile range.
  • 3-D data: Since both purity and quantity affect the price, we’re really talking about a “price surface” — just like a volatility surface or the yield curve on Treasurys. And in fact there are even more dimensions to the data since it could be cut differently, and … well, I won’t say what makes for good coke.
  • data collection: Do you really believe these numbers? Some undercover cop probably solicited drugs (I didn’t read the methodology section but just guessing). Does that seem like an error-free data collection process? But the same goes for macroeconomic data, financial data from companies, and so on. It comes from somewhere, it’s not “the truth” necessarily.

"Pricing" risk means, in part, assessing the probability of some sh*tty outcome.

Like, “Well, Baggins, what are the chances that…

  • interest rates move against us?”
  • the company defaults on its debts?”
  • a chain reaction based in the short-debts of South Asian markets triggers a worldwide fear of Russian default, thus causing a prolonged period of high volatility that nearly wipes out the American financial sector because of a single highly-leveraged hedge fund run by Nobel laureates?”
  • you make me a mustard sandwich?”

It means more, though, because of risk aversion, loss aversion, and the interaction of one investment with others in one’s portfolio.