Why the Den is built around books

Fri, 06 Nov 2026 00:00:00 GMT

Technical books are dense for a reason. Every page compresses an argument, and the argument only clicks once you’ve worked through it yourself.

Notes help. But some ideas don’t sit still on paper. “Option value rises with volatility” is true and almost useless until you drag a volatility slider and watch the curve lift away from its payoff. A forward-price formula means more once you’ve seen the arbitrage table flip as the quote moves.

So the Den is organized around books:

Library holds interactive books: companions with explanations, tools, live spreadsheets and exercises for one textbook at a time.
Writing holds shorter notes on single ideas, each tied to the book it came from.

The first volume covers derivatives: 37 chapters, 24 pricing tools and about 200 editable spreadsheets. It isn’t a copy of the book and doesn’t replace it. It’s a workbench to keep open beside it.

More volumes will follow as they’re finished.

The forward price is an argument, not a forecast

Mon, 02 Nov 2026 00:00:00 GMT

The first time I saw a forward price formula, I assumed it was a prediction: the market’s best guess of where the price will be. It isn’t. It’s the conclusion of an argument, and the argument is the part worth remembering.

The trade that can’t lose

Suppose a stock trades at $S_{0}$ today, pays no dividends, and you can borrow or lend at a continuously compounded rate $r$ . Someone offers to agree today on a price $F_{0}$ at which you’ll buy the stock at time $T$ .

You can build the same position yourself: borrow $S_{0}$ , buy the stock, hold it. At $T$ you own the stock and owe $S_{0} e^{r T}$ . A forward contract and this “cash-and-carry” position end in the same place, so they must cost the same:

F_{0} = S_{0} e^{r T}

If the quoted $F_{0}$ is higher, sell the forward and do the cash-and-carry. You lock in $F_{0} - S_{0} e^{r T}$ with no risk. If it’s lower, do the reverse: short the stock, lend the proceeds, buy the forward. Either way the mispricing pays for itself, and traders keep doing it until the gap closes.

What isn’t in the formula

The striking thing is what’s missing. There’s no expected return, no opinion about the company, no forecast of any kind. Two people who disagree completely about where the stock is going still have to agree on $F_{0}$ , because both of them can run the same arbitrage.

That changed how I read the rest of the book. Each new pricing result is worth asking about in the same way: what is the replicating trade, and what does it cost? Once you can answer that, the formula usually follows.

Where it bends

The clean version breaks in familiar ways, and each fix is still the same argument:

Income (dividends, coupons) reduces what it costs to carry the asset, so you subtract its present value $I$ : $F_{0} = (S_{0} - I) e^{r T}$ .
A yield $q$ works the same way in continuous form: $F_{0} = S_{0} e^{(r - q) T}$ . Currencies are the cleanest example, with $q$ as the foreign interest rate.
Storage costs add to the cost of carry. Convenience yield is what holders of a physical commodity are willing to give up to keep it on hand, and it’s why commodity forwards can sit below full carry.

I rebuilt this chapter as a small tool in the interactive Hull: change $r$ , $q$ or $T$ , and the arbitrage table shows which way to trade when the quote is off.

davinci254254’s Tech Den — Writing

Why the Den is built around books

The forward price is an argument, not a forecast

The trade that can’t lose

What isn’t in the formula

Where it bends