Futures contracts are all protocols that time out.
Some parties agree to sell a security in 10 working days, other parties agree to buy. The contracts are all on the buy and sell queues, and then ten day queues are organized as compact distributions. But securities are not cash,
The queue of ten day contracts becomes he queue of nine day, then eight and so on. Each day, at a specific time, the pit boss applies interest charges. The charges are gains to the smaller window, buy or sell. We want the quantity bought or sold to match, to reduce pit boss tisk.
At the end of ten days, if this is done right, we should have an indifference point, one remaining party on each side with price difference equal to the one day rate, which would be almost zero. The relative rates of change being nearly zero, equilibrium.
Who is packing sphere? The company itself. The more surplus it produces allows it to buy at a future high rice, generating interest income.
It almost works except for the jamming, right before morning when the pit boss clears the days interest charges. Agents were not bound to a transaction rate, so agents could manipulate time to completion by suddenly showing up with their bets a millisec before the clearing event. These bets would undoubtedly favor one side or the other, forcing the pit boss into a large market making risk.
We cannot be time stationary. But the pitboss can impose a variable transaction fee, which it collects designed to force the bets to spread out. Thus, the traders are now back to asynchronous and adaptable interest charges, and we can get a fair estimate of time rate of growth for the company,
The transaction fee is a time insurance payment, forcing parties to maintain a stable queue. It is insurance against time plotters.
No comments:
Post a Comment