QuantMax

Markets and products

6 lessons · 3 equations. Each lesson below gives its formulas and key rules; open the lesson for the full explanation.

Asset classes: who trades what, and why it is structured that way

Key rules

  • Fungibility concentrates liquidity; fragmentation across instruments widens spreads.
  • Exchange-traded means standardised and cleared; over-the-counter means negotiated and bilateral.
  • Forced, price-insensitive flow is where liquidity provision is most reliably paid.

ETFs: the arbitrage mechanism, and why leveraged ones decay

Premium and discount

premium=PETF−NAVNAV\text{premium} = \frac{P_{\text{ETF}} - \text{NAV}}{\text{NAV}}

Measured against the net asset value — or, during the day, against an indicative value computed from live prices of the basket. A persistent premium or discount means the arbitrage is costly or impossible, not that it has been missed.

Remember

  • Creation and redemption make the ETF and its basket convertible, which bounds the premium by arbitrage costs.

Corporate actions: adjustments, dividends and merger arbitrage

The merger spread

Pnow≈p Pdeal+(1−p) PbreakP_{\text{now}} \approx p\,P_{\text{deal}} + (1-p)\,P_{\text{break}}

The current price is a probability-weighted blend of the deal completing and the deal failing. Invert it and the market is quoting a completion probability.

Remember

  • Splits scale strike and contract size so the position value is unchanged.

Macro: the yield curve, the central bank and the calendar

Nominal, real and inflation

(1+i)=(1+r)(1+πe)⇒i≈r+πe(1 + i) = (1 + r)(1 + \pi^e) \quad\Rightarrow\quad i \approx r + \pi^e

The nominal rate compensates for the real return and for expected inflation. The difference between a nominal government bond and an inflation-linked one of the same maturity — the breakeven — is the market’s inflation expectation plus a risk premium.

Remember

  • A long yield is an average of expected short rates plus a term premium.

Market events, and the lesson each one actually taught

Key rules

  • Crowding plus leverage plus a forced unwind is the recurring structure.
  • Liquidity is an equilibrium, not a constant — it disappears when it is needed.
  • Daily-rebalanced leverage is structurally short gamma and must chase the move.