An Overview of the U.S. Patent System

Wednesday, 30 July 2014 22:07 by The Lunatic
 (Note: This was a term paper I wrote for an MBA class in 2012. I recently ran across it in my [More]
Categories:   Economics | Miscellaneous
Actions:   E-mail | Permalink | Comments (0) | Comment RSSRSS comment feed

Black-Scholes’ Dirty Little Secret

Tuesday, 6 September 2011 19:35 by The Lunatic
Back in 1973, two mathematicians named Fischer Black and Myron Scholes wrote a paper entitled "The Pricing of Options and Corporate Liabilities".  This became known as the “Black-Scholes option pricing model”, which earned them a coveted Nobel Prize in economics in 1997 (technically, Myron Scholes shared the prize with Robert Merton, another collaborator, since Fischer Black had passed away by that time). The Black-Scholes option model serves as the benchmark for setting the price of a common stock option. All you need to know is the stock price, the strike price of the option, the time left to expiration, the current interest rate, and this tricky little thing called the volatility of the stock. Ahhh, the volatility. There’s the rub. The volatility of a stock is calculated using an iterative process called a “cumulative normalized distribution function”. Basically, it looks at the variations of a stock’s up and down movement over a certain time period and offers up a percentage of the average movement. The volatility is an absolute measurement, which is different from a stock’s “beta” – the beta is a ratio of that particular stocks’ volatility as compared to the rest of the market, which is actually much easier to measure. In my definition of volatility, I said that it relies on the variation of a stock price over a certain period of time. But what period of time should you use? One week? A month? Three months? Six months? A year? Maybe two years? The time period that you use can make a huge difference in the value of the option, but there’s no general recommendation for what period to use. All of the other factors (stock price, strike price, time to expiration, etc.) are quantifiable values that can be specifically defined. The volatility, however, requires a bit of artistic interpretation.  If the stock was highly volatile nine months ago, but is more stable now, then measuring the historic volatility over the last six months is probably a... [More]
Categories:   Economics
Actions:   E-mail | Permalink | Comments (0) | Comment RSSRSS comment feed

Government Debt and Rising Interest Rates – A Dangerous Combination

Tuesday, 17 May 2011 18:41 by The Lunatic
Everyone knows that our national debt is completely out of control. But there’s an important issue that the press seems to be ignoring: the potentially devastating effect of rising interest rates. The Federal Reserve is responsible for implementing our fiscal policy, but the Fed can not “set” interest rates – the overall market does that, based on supply and demand.  However, the Fed can influence rates by increasing or restricting money supply.  At the moment, just like in Louisiana and Mississippi, the floodgates are wide open. The bond market is awash in “virtually free” money, which is artificially keeping interest rates at historic lows. But here’s the crux of the issue: with the floodgates open, the reservoir will eventually run dry – and the expectation is that interest rates will then rise. What happens to our federal budget when rates go up?  It could get really ugly really quickly. Here’s why: If you look at the chart in my earlier post, Trying to Make Sense of the Federal Budget, (the second chart, with the Social Security and Medicare numbers removed), you will see that interest payments on the federal debt clocked in at $218 billion in 2010, or 11% of our federal budget: The weighted average interest rate of all the US debt currently runs about 2.07%.  Shorter term debt has a lower interest rate – less than .25% – and longer term debt has a higher interest rate – approaching 4.375%. When longer term debt is more expensive than short term debt, we have what is referred to as More...

Trying to make sense of the Federal Budget

Wednesday, 6 April 2011 17:00 by The Lunatic
Pop quiz: What percent of our federal budget goes to the military?  If you look at the “official” budget numbers, the White House reports that Defense spending takes up just over 19% of our budget. Here is what our government spent in 2010, as reported by the Office of Management and Budget and the Department of the Treasury: At first glance, this looks like a reasonably balanced chart, without any single slice of the pie taking up too much of the available dough (the pun was intended, although the joke was – admittedly – kind of crusty). However, there’s been an unfortunate trend which started sometime around the Reagan era, where they try to “de-emphasize” the amount we spend on Defense by including More...

The Worst Investment Ever Made

Tuesday, 15 March 2011 16:54 by The Lunatic
The height of the “dot com” boom was a pretty crazy time for investors; venture capitalists were investing huge sums of cash with any entrepreneur who could type the word “internet” without using a spell checker. People made some really BAD investments and only a few of the startups from that period are still operating today. But there’s one deal that really takes the cake. This acquisition was so absurd in its reasoning and so insidious in scale that I’m surprised the story hasn’t been made into a Hollywood feature film. Let’s back up a few years, to 1996. This was the year that yours truly joined a small internet startup called VXtreme, an early pioneer in streaming video on the web. VXtreme had actually developed a viable technology and we created what was arguably the best streaming video platform (codecs, encoder, player, server) in the world at the time. Remember that in 1996, people were connected to the internet with 28.8Kbps modems – or if you could afford it, you might have one of the spanking new 56K modems.  Whoo-Hooo! Blazing fast internet it was, indeed. Delivering real time streaming video over such a connection was problematic at best – but it was SO exciting to see a media player embedded in a web page, rendering real time video with a resolution of 160x120 pixels at a whopping 15 frames per second refresh rate! We were truly on the bleeding edge. In just over ten months, we built the company, produced the product, engaged a bunch of high profile customers, and sold the whole thing to Microsoft for about $74 Million (and to set the record straight, I was not one of the founders or shareholders – just a “late hire” marketing manager, with options that were only worth about 1/10th of 1% of the company). It was a fair valuation for VXtreme.  Our technology was merged in with the “NetShow” product that Microsoft had been struggling with, and the platform was eventually renamed “Windows Media”. Even today, the Windows Media Player, Windows... [More]
Categories:   Economics | Miscellaneous | Science
Actions:   E-mail | Permalink | Comments (3) | Comment RSSRSS comment feed

Tackling the Healthcare Issue

Monday, 25 October 2010 19:10 by The Lunatic
Newsflash: The cost of healthcare in America has been out of control for many years and we really need to do something about it! Ok, so this isn’t news. And we already have the all-new healthcare reform legislation which fixes all our problems, right? Unfortunately, this new law – officially called the “Patient Protection and Affordable Care Act” (PPACA) but more affectionately referred to as “Obamacare” – has some problems, and now a few people are lobbying to ditch this plan so they can come up with something different. Part of the problem with baking up a new healthcare plan is that there are so many fingers in the pie, all with vested interests – you have the healthcare insurance companies, malpractice insurance companies, pharmaceutical companies, hospital owners, nurses unions, lobbyists, medical licensing boards, government agencies (FDA, HHS, CDC, VA, CMS, etc), the politicians (who love to shoot down whatever their opponents propose, no matter what it is) ... and let’s not forget the doctors and the patients themselves.  It really is fundamentally IMPOSSIBLE to implement any reform that won’t upset someone in the chain. It’s a political nightmare, and everyone knows it – but something has to be done. More...

The Crazy Price of Video Cables

Thursday, 16 September 2010 04:02 by The Lunatic
In years past, when you purchased a VCR or a DVD player, it would come with a video cable so that you could go home, connect your new player to your TV, and immediately start watching.  It was usually a cheap combination audio/video cable – not very sturdy, but it would get the job done. If you purchase a new Blu-Ray player today, however, you will find that not a single cable is to be found in the box. A high tech Blu-Ray player should really should at least come with an HDMI cable (High Definition Multi-media Interface, the preferred method of connecting any HD video source to a digital television).  A decent quality cable costs less than fifty cents to make. Are the manufacturers just getting cheap?  Trying to cut corners? Nope.  They’ve stopped including cables because More...
Categories:   Economics | Miscellaneous | Science
Actions:   E-mail | Permalink | Comments (2) | Comment RSSRSS comment feed

Energy, Efficiency, and the long road to SBSP

Saturday, 3 April 2010 14:29 by The Lunatic
Here’s an old high school physics puzzle, let’s see if you can get the right answer: You have perfectly insulated room (i.e., no heat can escape).  Inside the room is a refrigerator, plugged in and running – but the refrigerator door is left wide open. As the refrigerator runs, does the room: A – get colder B – get warmer C – stay the same temperature Think about it for a minute ... (and yes, I first heard this from my high school science teacher back in the late 70’s) The answer is ... (drum roll please!) ... More...
Categories:   Economics | Science
Actions:   E-mail | Permalink | Comments (4) | Comment RSSRSS comment feed

The Bigger Chill

Sunday, 31 January 2010 02:10 by The Lunatic
The star studded 1983 movie "The Big Chill” was about a weekend reunion of a bunch of old college friends – now in their early 30’s – who all get together for the funeral of Alex, one of their classmates who committed suicide. The movie is poignant, intelligent, very funny, and somewhat disturbing all the same time. It’s about rekindling old friendships, coping with the shock of their friend Alex’s death, and wondering what happened to the social idealism that they all shared when they attended the University of Michigan in the late 60’s. They were all anti-establishment, idealistic, smart, enthusiastic, with a vocal desire to change the world and make it a better place. Alex, now deceased, was a charismatic science major. Everyone thought he was the most intelligent one of the bunch – and their mutual friendship really survived through the years because of him. He was the glue that kept them all together, but he was never able to get his own life straightened out. Now, in 1983, they realize they are becoming the conservative “establishment” that they protested against in college.  More...

Hey, let’s blame it all on Obama!

Monday, 5 October 2009 12:43 by The Lunatic
  A good friend of mine forwarded the following email to me the other day.  Now, before I begin, this friend is one of the smartest people I know.  He is the CEO of a rapidly growing company, introducing successful new products into the marketplace even in this economy. He is a vocal Republican, so all I ever heard from him for about 20 years was that “it’s the Democrats fault” when referring to ANY problems in the world.  I’m neither democrat nor republican, so it's never bothered me any. But then, halfway through the second term of the Bush administration, he swung around and admitted that maybe it’s not ALL the Democrats fault, the Republicans need to take some part of the blame for the state of the world’s affairs. And horror of horrors, he hesitantly (accidentally?) said some positive remarks towards Obama during the election (but really, I think it was more of an anti-McCain sentiment than anything, in one email he said “clearly McCain is an even worse war monger than Bush, very scary.  I bet he never met a weapon he didn't buy.”) However, he’s back to his lovable More...
Categories:   Economics | Politics
Actions:   E-mail | Permalink | Comments (3) | Comment RSSRSS comment feed