Patrick Boyle

In Part two of our series on Structured Products, let's learn about Constant Proportion Portfolio Insurance.

These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0
Check out our website http://www.onfinance.org/

Follow Patrick on twitter here: https://twitter.com/PatrickEBoyle

What is Constant Proportion Portfolio Insurance (CPPI)?
Constant Proportion Portfolio Insurance (CPPI) is a type of portfolio insurance in which the investor sets a floor on the dollar value of their portfolio, then structures asset allocation around that decision. The two asset classes used in CPPI are a risky asset (usually equities or mutual funds) and a conservative asset of either cash, equivalents or treasury bonds. The percentage allocated to each depends on the "cushion" value, defined as current portfolio value minus floor value, and a multiplier coefficient, where a higher number denotes a more aggressive strategy.

Understanding Constant Proportion Portfolio Insurance (CPPI)
Constant Proportion Portfolio Insurance (CPPI) allows an investor to maintain exposure to the upside potential of a risky asset while providing a capital guarantee against downside risk. The outcome of the CPPI strategy is somewhat similar to that of buying a call option, but does not use option contracts. Thus, CPPI is sometimes referred to as a convex strategy, as opposed to a "concave strategy" like constant mix. Financial institutions sell CPPI products on a variety of risky assets, including equities and credit default swaps.

A CPPI fund is a fund where the manager allocates dynamically and regularly exposure to risky assets (underlying such as equities or stock indices) and non-risky assets (bonds, money market funds) in order to ensure the preservation of invested capital.
To achieve his goal, the manager defines the "cushion" or the percentage of the fund’s assets that may be put at risk without any effect on the level of protection.
The "cushion" is estimated by the difference between the initial value of the product and the present value minimum necessary to provide the capital guarantee at maturity.
Using quantitative models, the manager will then compute a level of indexing (or multiplier) to apply to the "cushion" to get the portfolio’s exposure to the risky underlying.
The adjustment of indexing level will depend on the dynamic changes of the risky underlying.
The more risky assets perform, the stronger indexing level will be, and the more the manager will increase exposure to risky assets.
On the other hand, the less risky assets perform, the weaker indexing level will be, and the more the manager will decrease exposure to risky assets

Advantages:
The indexing level may exceed 100% in case of initial good performances of risky assets, and generate a better overall return for the fund.

Disadvantages:
Risk of monetization (the level of exposure to the risky assets becomes zero) if the risky assets underperform at launch

Learn more about your ad choices. Visit megaphone.fm/adchoices

These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0
Check out our website http://www.onfinance.org/

Follow Patrick on twitter here: https://twitter.com/PatrickEBoyle

Learn more about your ad choices. Visit megaphone.fm/adchoices

🔒 Get 20% off DeleteMe by going to https://joindeleteme.com/BOYLE and use code BOYLE to protect your privacy! 🙌🏻

The AI boom isn’t just about algorithms — it’s about money, power, and a race to build infrastructure on a scale we’ve never seen before. In this video, we break down the circular deals between OpenAI, Nvidia, Amazon, Anthropic, and even Elon Musk’s empire — and ask the hard questions: Who’s paying for this? Where will the electricity come from? And is the industry building a Möbius strip of venture capital and gigawatts that could collapse under its own weight?
We’ll explore:

The spaghetti diagram of AI’s biggest players
OpenAI’s trillion-dollar data center ambitions
Why Nvidia’s demand might not be what it seems
The risk of stranded assets and systemic leverage
How geopolitics and energy constraints could shape the future

If you want to understand the economics behind the hype — and why this might be the biggest corporate investment project in history — watch now.

Patrick's Books:
Statistics For The Trading Floor: https://amzn.to/3eerLA0
Derivatives For The Trading Floor: https://amzn.to/3cjsyPF
Corporate Finance: https://amzn.to/3fn3rvC

Ways To Support The Channel
Patreon: https://www.patreon.com/PatrickBoyleOnFinance
Buy Me a Coffee: https://www.buymeacoffee.com/patrickboyle

Visit our website: https://www.onfinance.org
Follow Patrick on Twitter Here: https://bsky.app/profile/pboyle.bsky.social

Business Inquiries ➡️ [email protected]

Patrick Boyle On Finance Podcast:
Spotify: https://open.spotify.com/show/7uhrWlDvxzy9hLoW0EYf0b
Apple: https://podcasts.apple.com/us/podcast/patrick-boyle-on-finance/id1547740313
Google Podcasts: https://tinyurl.com/62862nve

Join this channel to support making this content:
https://www.youtube.com/channel/UCASM0cgfkJxQ1ICmRilfHLw/join

Learn more about your ad choices. Visit megaphone.fm/adchoices

Financial Options Pricing History. Today we will learn How do Investors Price Options?
These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0
Check out our website http://www.onfinance.org/

Follow Patrick on twitter here: https://twitter.com/PatrickEBoyle

Up to now we have looked at how options work and how they can be combined. We have mentioned options premium and how it is made up of time value and intrinsic value. In this video we will look at a few of the most common methods for pricing options. The value of options depends on a number of different variables in addition to the value of the underlying asset. They are complex to value and there are many pricing models in use. All models essentially incorporate the concepts of rational pricing, intrinsic value, time value, and put-call parity.

In this video we will give you some insight as to how different variables affect option prices, and we hope to show you that while these methods are extremely useful, they are quite fallible, and can only give you an indication of fair value that is extremely dependent on the inputs into the formulas. The old “garbage in, garbage out” adage is particularly applicable to derivatives valuation—and most of financial mathematics. The formulas we will look at are only as good as the numbers that are put into them and often rely on a number of assumptions that do not always hold up in live securities market trading. They all rely on an estimate of volatility, and on an assumed distribution, that cannot be known in advance.

In general, standard option valuation models depend on the following factors:
• The current market price of the underlying security
• The strike price of the option
• The cost of holding a position in the underlying security, including interest and dividends
• The time to expiration together with any restrictions on when exercise may occur
• An estimate of the future volatility of the underlying security’s price over the life of the option.

Options, or option-like contracts have been around for hundreds of years. Only in the 1970s was a formal pricing model introduced..
Options contracts are very similar to insurance contracts, and so most of the ideas used to price them came from the insurance business. As early as 1350 in Palermo, insurance contracts were common for casualty and credit risks relating to shipping. The two kinds of insurance were often being written separately. A popular contract was a conditional sale (similar to a put option) where the insurer agreed to purchase ship or cargo if it failed to arrive.

Louis Bachelier (1870–1946) was a French mathematician credited with being the first person to model the stochastic process now called Brownian motion, which was part of his PhD thesis “The Theory of Speculation,” published in 1900. His thesis, which discussed the use of Brownian motion to evaluate stock options, is historically the first paper to use advanced mathematics in the study of finance. Thus, Bachelier is considered a pioneer in the study of financial mathematics and stochastic processes. Bachelier’s thesis was not well received because it attempted to apply mathematics to an unfamiliar area for mathematicians.

We know the fair value of an options contract at expiration based upon the payoff diagrams, and we know that options are worth more than their value at expiration before the expiration date due to time value.
Option value = Intrinsic value + Time value
Before mathematical formulas existed for pricing options we knew that the fair value of options was higher than intrinsic value, as there was still time for the underlying to move in your favor, but not how much higher the price should be. Option prices, like all market prices, were just a capital weighted average of every market participant’s best gu

Learn more about your ad choices. Visit megaphone.fm/adchoices

In todays video we will learn about Dividend Swaps, Commodity Swaps and Equity Swaps.

These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0
Check out our website http://www.onfinance.org/

Follow Patrick on twitter here: https://twitter.com/PatrickEBoyle

What are Dividend Swaps?
A dividend swap is an over-the-counter financial derivative contract (in particular a form of swap). It consists of a series of payments made between two parties at defined intervals over a fixed term. One party - the holder of the fixed leg - will pay its counterparty a pre-designated fixed payment at each interval. The other party - the holder of the floating leg - will pay its counterparty the total dividends that were paid out by a selected underlying, which can be a single company, a basket of companies, or all the members of an index. The payments are multiplied by a notional number of shares.

Like most swaps, the contract is usually arranged such that its value at signing is zero. This is accomplished by making the value of the fixed leg equal to the value of the floating leg - in other words, the fixed leg will be equal to the average expected dividends over the term of the swap. Therefore, the fixed leg of the swap can be used to estimate market forecasts of the dividends that will be paid out by the underlying


What is a Commodity Swap?

A commodity swap is a type of swap agreement whereby a floating (or market or spot) price based on an underlying commodity is traded for a fixed price over a specified period.

The vast majority of commodity swaps involve oil. Many airline and rail companies enter oil commodity swap deals in order to secure lower oil costs in the long term.

A commodity swap is similar to a fixed-floating interest rate swap. The difference is that in an interest rate swap, the floating leg is based on standard interest rates such as LIBOR and EURIBOR. However, in a commodity swap, the floating leg is based on the price of underlying commodity like oil, sugar, and precious metals. No commodities are exchanged during the trade. In this swap, the user of a commodity would secure a maximum price and agree to pay a financial institution this fixed price. Then, in return, the user would get payments based on the market price for the commodity involved. On the other side, a producer wishes to fix the income and would agree to pay the market price to a financial institution, in return for receiving fixed payments for the commodity.

What is an equity swap?
An equity swap is a financial derivative contract (a swap) where a set of future cash flows are agreed to be exchanged between two counterparties at set dates in the future. The two cash flows are usually referred to as "legs" of the swap; one of these "legs" is usually pegged to a floating rate such as LIBOR. This leg is also commonly referred to as the "floating leg". The other leg of the swap is based on the performance of either a share of stock or a stock market index. This leg is commonly referred to as the "equity leg". Most equity swaps involve a floating leg vs. an equity leg, although some exist with two equity legs.
An equity swap involves a notional principal, a specified duration and predetermined payment intervals. The term "tenor" may refer either to the duration or the coupon frequency.

Trading and Pricing Financial Derivatives

Learn more about your ad choices. Visit megaphone.fm/adchoices

Get an exclusive 15% discount on Saily data plans! Use code BOYLE at checkout. Download Saily app or go to https://saily.com/boyle

Two days after its release, my analysis of the Epstein files was on track to break every record on this channel. Then the yellow dollar sign appeared, and the video flatlined.

In this video, we explore how algorithmic demonetization has evolved into a form of "soft censorship." It isn't a conspiracy, but a broken business model that taxes serious journalism in favor of "brand safe" entertainment. We look back at the Logan Paul "Adpocalypse," examine the structural bias against independent creators, and analyze the alarming decline of U.S. Press Freedom (now ranked #57 globally).

From the missing footage in Epstein's cell to the 2020 spike in journalist arrests, we ask the hard question: If the algorithm filters out the "boring" work of holding power to account, does YouTube cease to be a digital public square?

Link to the Demonetized videos:
https://youtu.be/GAJf2F1BbRA?si=pocxFNV33xXlANqo
https://youtu.be/MG95B0fyuWI?si=ULY-lTHAzqqkAYq2

@VloggingThroughHistory video: https://www.youtube.com/watch?v=SnPrVn24dTE

Patrick's Books:
Statistics For The Trading Floor: https://amzn.to/3eerLA0
Derivatives For The Trading Floor: https://amzn.to/3cjsyPF
Corporate Finance: https://amzn.to/3fn3rvC

Ways To Support The Channel
Patreon: https://www.patreon.com/PatrickBoyleOnFinance
Buy Me a Coffee: https://www.buymeacoffee.com/patrickboyle

Visit our website: https://www.onfinance.org
Follow Patrick on Twitter Here: https://bsky.app/profile/pboyle.bsky.social

Business Inquiries ➡️ [email protected]

Patrick Boyle On Finance Podcast:
Spotify: https://open.spotify.com/show/7uhrWlDvxzy9hLoW0EYf0b
Apple: https://podcasts.apple.com/us/podcast/patrick-boyle-on-finance/id1547740313
Google Podcasts: https://tinyurl.com/62862nve

Join this channel to support making this content:
https://www.youtube.com/channel/UCASM0cgfkJxQ1ICmRilfHLw/join

Learn more about your ad choices. Visit megaphone.fm/adchoices

🔒 Get 20% off DeleteMe by going to https://joindeleteme.com/BOYLE and use code BOYLE to protect your privacy! 🙌🏻

OpenAI has signed $1.4 trillion in infrastructure commitments, but how do they plan to pay for it? Are government subsidies and taxpayer-backed guarantees the next step? In this video, we dive into the financing gymnastics behind the AI revolution, the lobbying for federal support, and why tech firms are pitching AI as “too important to fail.”
We’ll cover:
✅ OpenAI’s $1.4 trillion data center buildout
✅ The push for government backstops and subsidies
✅ Nvidia’s warning on energy and capital constraints
✅ Why AI could strain power grids and utilities
✅ The risk of an AI “metabubble” and what it means for investors

Watch Sarah Friar's Interview @wsj https://www.youtube.com/watch?v=8guZhBw4Z3g

Patrick's Books:
Statistics For The Trading Floor: https://amzn.to/3eerLA0
Derivatives For The Trading Floor: https://amzn.to/3cjsyPF
Corporate Finance: https://amzn.to/3fn3rvC

Ways To Support The Channel
Patreon: https://www.patreon.com/PatrickBoyleOnFinance
Buy Me a Coffee: https://www.buymeacoffee.com/patrickboyle

Visit our website: https://www.onfinance.org
Follow Patrick on Twitter Here: https://bsky.app/profile/pboyle.bsky.social

Business Inquiries ➡️ [email protected]

Patrick Boyle On Finance Podcast:
Spotify: https://open.spotify.com/show/7uhrWlDvxzy9hLoW0EYf0b
Apple: https://podcasts.apple.com/us/podcast/patrick-boyle-on-finance/id1547740313
Google Podcasts: https://tinyurl.com/62862nve

Join this channel to support making this content:
https://www.youtube.com/channel/UCASM0cgfkJxQ1ICmRilfHLw/join

Learn more about your ad choices. Visit megaphone.fm/adchoices

⚡️Start designing today with Gamma for free ➡️ https://gamma.app

Big tech companies like Microsoft, Amazon and Google are driving the nuclear revival, as to get new power-hungry data centers built in the US and Europe, they have to solve the problem of power generation. Their net zero pledges mean that the sources of power that they have pledged to use have to be low carbon, and they have already invested heavily in wind and solar, but their data centers still need a steady base load, so for big tech, investing in nuclear energy makes a lot of sense.

Patrick's Books:
Statistics For The Trading Floor: https://amzn.to/3eerLA0
Derivatives For The Trading Floor: https://amzn.to/3cjsyPF
Corporate Finance: https://amzn.to/3fn3rvC

Ways To Support The Channel
Patreon: https://www.patreon.com/PatrickBoyleOnFinance
Buy Me a Coffee: https://www.buymeacoffee.com/patrickboyle

Visit our website: https://www.onfinance.org
Follow Patrick on Twitter Here: https://twitter.com/PatrickEBoyle

@PracticalEngineeringChannel Connecting Solar to the Grid is Harder Than You Think: https://www.youtube.com/watch?v=7G4ipM2qjfw

Business Inquiries ➡️ [email protected]

Patrick Boyle On Finance Podcast:
Spotify: https://open.spotify.com/show/7uhrWlDvxzy9hLoW0EYf0b
Apple: https://podcasts.apple.com/us/podcast/patrick-boyle-on-finance/id1547740313
Google Podcasts: https://tinyurl.com/62862nve

Join this channel to support making this content:
https://www.youtube.com/channel/UCASM0cgfkJxQ1ICmRilfHLw/join

Learn more about your ad choices. Visit megaphone.fm/adchoices

Check out OpenDots ONE: https://sdqk.shokz.com/PatrickBoyle/ks9vcQRP?utm_content=link
Get 30% OFF the OpenDots ONE. Save an extra 5% with my code PATRICK5, plus a limited Buy One, Get One (BOGO).

For decades, a university degree was the golden ticket to a stable career and upward mobility. That promise is breaking down. Graduate unemployment is rising, entry-level jobs are disappearing, and automation is hollowing out the first rung of the corporate ladder.

Patrick's Books:
Statistics For The Trading Floor: https://amzn.to/3eerLA0
Derivatives For The Trading Floor: https://amzn.to/3cjsyPF
Corporate Finance: https://amzn.to/3fn3rvC

Ways To Support The Channel
Patreon: https://www.patreon.com/PatrickBoyleOnFinance
Buy Me a Coffee: https://www.buymeacoffee.com/patrickboyle

Visit our website: https://www.onfinance.org
Follow Patrick on Twitter Here: https://bsky.app/profile/pboyle.bsky.social

Business Inquiries ➡️ [email protected]

Patrick Boyle On Finance Podcast:
Spotify: https://open.spotify.com/show/7uhrWlDvxzy9hLoW0EYf0b
Apple: https://podcasts.apple.com/us/podcast/patrick-boyle-on-finance/id1547740313
Google Podcasts: https://tinyurl.com/62862nve

Join this channel to support making this content:
https://www.youtube.com/channel/UCASM0cgfkJxQ1ICmRilfHLw/join

Learn more about your ad choices. Visit megaphone.fm/adchoices

In todays video we will talk about the Bank of England’s forecast that the Coronavirus epidemic will push the UK economy into its deepest recession in 300 years and their decision not to provide any new stimulus right away.

Buy The Book Here: https://amzn.to/2J2kF3A
Visit our website: www.onfinance.org
Follow Patrick on Twitter Here: https://twitter.com/PatrickEBoyle

The Bank of England in its monetary policy report this morning put forth its predictions for the UK economy.
Suggesting that output would fall 3% in the first quarter followed by 25% in the second quarter an almost 30% drop in output drop in the first half of 2020 the fastest and deepest recession since the great frost in 1709.
The great frost of 1709 saw three months of deadly cold that led to a year of famine and food riots in Europe. everything turned to ice. Lakes and rivers and seas froze, the soil froze to a depth of a meter or more. Livestock died from cold in their barns and travelers froze to death on the roads.
The last time we have had an annual drop in real GDP of more than 4.5% was in 1945. The last time we have had an annual drop in real GDP of greater than 10% was in 1709.
These economic projections came with a warning to Britain’s banks that if they tried to stem losses by restricting lending, they would make the situation worse.
Andrew Bailey, the BoE governor, said a failure to lend would create a vicious circle of more bankruptcies and higher losses on loans that would come back to hit the banks themselves.
Mr Bailey said: “The better path for banks is to keep lending if the system ensures a good supply of loans, we’ll get a better outcome.”
Commercial banks responded that they were committed to lending through the crisis.
the BoE warned that, even with adequate lending, the economy was bound to take a big hit; household spending has already dropped about 30 per cent since early March.
The central bank forecast that the UK’s unemployment rate was likely to rise to 9 per cent by next year, even with the government’s job retention scheme protecting many employees from being laid off. That would mean a higher rate of joblessness than after the 2008 financial crisis. They forecast that inflation would dip to 0.5 per cent in 2021, before returning to the 2 per cent target the following year.
On a more positive note, Mr Bailey said the economic rebound was likely to happen “much more rapidly than the pullback from the global financial crisis”.

They assume that long-term damage to the economy would be only 1.5 per cent GDP coming from missed business investment in 2020. Otherwise the prediction is for a V-shaped recovery.
Bailey defended the decision not to take more immediate action, saying the measures announced in March had not been exhausted and that they have made a very clear commitment to do what it takes to support the economy consistent with the inflation target.
All MPC members agreed that more stimulus might be needed in future. The central bank is signalling that more QE is in the pipeline.

The BoE analyzed if the financial system could cope with their expected recession.
They say that that banks will lose less money than in their latest stress test and that “the core banking system has capital buffers more than sufficient to absorb losses”.
The BoE did stress that the pandemic would severely hit corporate cash flow. Government support would plug some of the gap, but there remains a £60bn additional deficit that banks would need to cover to stop viable businesses from going under.
The central bank warned that if banks failed to provide credit to their business customers, they might see a short-term benefit in reduced losses, but this would cause more companies to fail and unemployment to rise another 2 percentage points, ultimately leading to larger losses.

Learn more about your ad choices. Visit megaphone.fm/adchoices