the way you walk through this is fantastic. I would take the idea of options being the real underlying one step further: all investment vehicles are derivatives of the enterprise being financed. For example, AAPL is a derivative of Apple Inc. AAPL shares derive their value from the intrinsic value of Apple Inc. (which is not always a known or knowable thing...fundamental analysts try) and the extrinsic value that the market assigns to AAPL. Financial intermediation is all about creating vehicles to make capital formation more efficient. Those vehicles tend to take on lives of their own once they are set free in the markets and create a feedback loop to the enterprises they are financing. We are watching this play out in real time today with SREIT and BREIT.
the way you walk through this is fantastic. I would take the idea of options being the real underlying one step further: all investment vehicles are derivatives of the enterprise being financed. For example, AAPL is a derivative of Apple Inc. AAPL shares derive their value from the intrinsic value of Apple Inc. (which is not always a known or knowable thing...fundamental analysts try) and the extrinsic value that the market assigns to AAPL. Financial intermediation is all about creating vehicles to make capital formation more efficient. Those vehicles tend to take on lives of their own once they are set free in the markets and create a feedback loop to the enterprises they are financing. We are watching this play out in real time today with SREIT and BREIT.