.

[stochastic]

...pirate isn't going to default anytime soon.

Trollface.jpg

I'm a contrarian.

[Ean]

Can you show the math behind that break-even value?

1.28 / 1.07^4

[BinaryMage]

Can you show the math behind that break-even value?

1.28 / 1.07^4

Oh, we were discussing break-even in comparison to simply investing 960 BTC with Pirate, not general break-even for a non-default.

[coblee]

Can you show the math behind that break-even value?

1.28 / 1.07^4

Oh, we were discussing break-even in comparison to simply investing 960 BTC with Pirate, not general break-even for a non-default.

1.28 / 1.31 does not take into consideration the lost opportunity cost of 960 btc sitting there doing nothing. So that's not the true break even cost. Because PPT would earn more if they took the 960 btc and invested directly with Pirate since they are risking to lose that anyways if pirate defaults.

Here's the algebra for calculating the true break-even with compounding:

Case 1 - Sell 1 share of PPT at 1+x (if sold at 1.038 then x=.038)
  no default: PPT makes x+.03 (.03 is the extra you get for compounding)
  default: PPT loses .32-x

Case 2 - Put .32-x btc with pirate
  no default: PPT makes (.32-x)*.31 = .0992-.31x
  default: PPT loses .32-x

So break-even is when the 2 "no default" cases are equal.

  x + .03 = .0992 - .31x
  1.31x = .0692
  x = .0692 / 1.31
  x = .05284427

For the compounding case, true break-even is 1.0528 btc per share.
Selling shares less than 1.0528 is a losing proposition for PPT.

[Ean]

Oh, we were discussing break-even in comparison to simply investing 960 BTC with Pirate, not general break-even for a non-default.

Who is investing this 960 BTC?

Because PPT would earn more if they took the 960 btc and invested directly with Pirate since they are risking to lose that anyways if pirate defaults.

Sure, but if Pirate defaults they will loose 960 to you, not to Pirate. If they invest the insurance to Pirate they'll loose 1920 since they promised to pay you 0.32 BTC / share.

Case 1 - Sell 1 share of PPT at 1+x (if sold at 1.038 then x=.038)
  no default: PPT makes x+.03 (.03 is the extra you get for compounding)

You seem to assume they'll invest no more than one BTC / share. If they sell for more than 1 BTC / share, why wouldn't they invest it all?

[PatrickHarnett]

The assumption is that the loss is an opportunity cost that I would have invested those coins with BS&T.  On that assumption, there is a non-profit maximised result.

However, it is unlikely that I would have taken those coins and done that.  he others may have.  But we do have 4000 coins sitting idle earning no interest, so that is a cost (even if just an opportunity cost).

As has also been pointed out, there is an expected profit from the latest round that (according to Burt's calcs) delivers 221.339BTC that will translate into a dividend of 0.0246 BTC for each PPT.DIV share in four weeks time.  So while there has been an interesting page of math, the end result is a 2.46% return for the person that picked up some dividend shares for 1.0  (the next five dividends currently total 0.24 BTC).

So, while the math boffins are busy, would you like to work out how profitable or not this scheme is for someone simply holding dividend shares and not positing any of the 4000 coins of insurance funding?

[BinaryMage]

Oh, we were discussing break-even in comparison to simply investing 960 BTC with Pirate, not general break-even for a non-default.

Who is investing this 960 BTC?

The PPT group. When they issued PPT.A, they put 960 BTC in the insurance fund. We are stating that it would have been more profitable to simply invest that 960 BTC in Pirate.

Because PPT would earn more if they took the 960 btc and invested directly with Pirate since they are risking to lose that anyways if pirate defaults.

Sure, but if Pirate defaults they will loose 960 to you, not to Pirate. If they invest the insurance to Pirate they'll loose 1920 since they promised to pay you 0.32 BTC / share.

Investing the 960 BTC in Pirate instead of running PPT.A, not in addition to.

Case 1 - Sell 1 share of PPT at 1+x (if sold at 1.038 then x=.038)
  no default: PPT makes x+.03 (.03 is the extra you get for compounding)

You seem to assume they'll invest no more than one BTC / share. If they sell for more than 1 BTC / share, why wouldn't they invest it all?

Less loss if BS&T defaults.

(Patrick, if you feel this discussion is OT, just say so and we'll stop.)

[PatrickHarnett]

(Patrick, if you feel this discussion is OT, just say so and we'll stop.)

Actually it was quite interesting to wake this morning and see where it had evolved to.  Even more interesting to hear people claim I/we were losing money when at a simple level the tangible coins flow out the other end into people's pockets.  (and perhaps envious that I wasn't around when someone decided to sell div shares at 1.0)

The overall point, is that if you only have a few coins, and do not have a BS&T account, there are a few ways of gaining access to high returns.  We have seen a growth in competing products, but these have taken five or six weeks to come to market, and at least one of them has folded before launch.  Some are backed by well known and reputable members of the forum, others not so well known, and a range of rates/features. 

Despite this, we have still sold 3000 PPT.A bonds this week, have 4000 coins in reserves, found a few places where we broke GLBSE, raised a lot of awareness, had some interesting announcements from Pirate, paid dividends, redeemed two rounds of bonds, and delivered some advantage to a lot of people (I think there were over 100 cleared bids yesterday - not sure how many individuals).

Tomorrow we pay another dividend 0.0289 BTC/share to 9000 shares so the recipients of those payments are not necessarily losing money on PPT. 

[Ean]

We are stating that it would have been more profitable to simply invest that 960 BTC in Pirate.

Investing the 960 BTC in Pirate instead of running PPT.A, not in addition to.

Sorry, I just assumed, since this is the PPT thread, that we were talking about PPT.
Mia culpa.

Case 1 - Sell 1 share of PPT at 1+x (if sold at 1.038 then x=.038)
  no default: PPT makes x+.03 (.03 is the extra you get for compounding)

You seem to assume they'll invest no more than one BTC / share. If they sell for more than 1 BTC / share, why wouldn't they invest it all?

Less loss if BS&T defaults.

Please explain this. They believe in Pirate and want to maximize their profit, right? They are not risking the (1 + x) BTC / share, it's not their money. You are risking that money, they only risk the insurance.

[BinaryMage]

Less loss if BS&T defaults.

Please explain this. They believe in Pirate and want to maximize their profit, right? They are not risking the (1 + x) BTC / share, it's not their money. You are risking that money, they only risk the insurance.

In this round, for example, if they only invest 3000 BTC into Pirate and he defaults, they will only lose 960 - 113.95 = 846.05 BTC.
If they invest all 3113.95 BTC, and he defaults, they will lose the full 960 BTC.

Note that I'm not saying that investing that additional BTC with Pirate is a bad idea, I'm just pointing out that it is a rational possibility. Holding that 113.95 BTC outside of Pirate decreases their profits if Pirate pays, but decreases their losses if he defaults:

Assuming the 113.95 BTC above the 3000 BTC is not invested with Pirate and not earning any interest (unlikely), if Pirate defaults, they will lose 960 - 113.95 BTC = 846.05 BTC - but only if he defaults before the first payment.
If he defaults after the first payment, they will lose 960 - 113.95 - (.07 * 3000) = 636.05 BTC.
After the second payment, 960 - 113.95 - (.14 * 3000) = 426.05 BTC.
After the third payment, 960 - 113.95 - (.21 * 3000) = 216.05 BTC.

If he does not default, they will make 3113.95 - 3000 = 113.95 BTC

An investment of 960 BTC into Pirate would lose 960 BTC if Pirate defaults before the first payment.
960 - (.07 * 960) = 892.8 BTC loss if Pirate defaults after the first payment.
960 - (.14 * 960) = 825.6 BTC loss if Pirate defaults after the second payment.
960 - (.21 * 960) = 758.4 BTC loss if Pirate defaults after the third payment.
And finally a .28 * 960 = 268.8 BTC profit if Pirate does not default.

This acts effectively as a partial hedge against their own investment, decreasing variance. Think of it as a similar effect to taking a slight fee at a PPS pool in return for more reliable payouts. (Not a literal analogy, but it might help clarify.)

[BinaryMage]

(Patrick, if you feel this discussion is OT, just say so and we'll stop.)

Actually it was quite interesting to wake this morning and see where it had evolved to.  Even more interesting to hear people claim I/we were losing money when at a simple level the tangible coins flow out the other end into people's pockets.  (and perhaps envious that I wasn't around when someone decided to sell div shares at 1.0)

The overall point, is that if you only have a few coins, and do not have a BS&T account, there are a few ways of gaining access to high returns.  We have seen a growth in competing products, but these have taken five or six weeks to come to market, and at least one of them has folded before launch.  Some are backed by well known and reputable members of the forum, others not so well known, and a range of rates/features. 

Despite this, we have still sold 3000 PPT.A bonds this week, have 4000 coins in reserves, found a few places where we broke GLBSE, raised a lot of awareness, had some interesting announcements from Pirate, paid dividends, redeemed two rounds of bonds, and delivered some advantage to a lot of people (I think there were over 100 cleared bids yesterday - not sure how many individuals).

Tomorrow we pay another dividend 0.0289 BTC/share to 9000 shares so the recipients of those payments are not necessarily losing money on PPT. 

Math can do a lot of things, including "proving" logical impossibilities. For example:

Let a = b.
Then a^2 = a*b.
Then 2a^2 = a^2 + a*b.
Then 2a^2 - 2ab = a^2 + ab - 2ab.
Consequently 2a^2 - 2ab = a^2 - ab.
Factoring, 2(a^2 - ab) = 1(a^2 - ab).
Divide by (a^2 - ab), and...
2 = 1

(There is (sort of) an error in the above, but most people miss it. See if you can guess it!)

More seriously, we are not questioning the financial viability of PPT assuming Pirate does not default, only the less-than-optimal profitability in comparison to directly investing 960 BTC. Essentially, if you have 100% guaranteed investment opportunities, one that pays 1% per week, and another that pays 2%, both make money, but the second is the better choice financially.

I like what you're doing here, and you have my kudos. (And you certainly started a trend.) Don't get me wrong, I think PPT has had a positive impact and I wouldn't want you to cease it. Some of us just like spending our Friday nights doing math.

[PatrickHarnett]

Math can do a lot of things, including "proving" logical impossibilities. For example:

Let a = b.
Then a^2 = a*b.
Then 2a^2 = a^2 + a*b.
Then 2a^2 - 2ab = a^2 + ab - 2ab.
Consequently 2a^2 - 2ab = a^2 - ab.
Factoring, 2(a^2 - ab) = 1(a^2 - ab).
Divide by (a^2 - ab), and...
2 = 1

(There is (sort of) an error in the above, but most people miss it. See if you can guess it!)

There is an error, and most people do miss it.  

What you wrote was 2 * 0 = 1 * 0 and that does not prove 2 = 1.

[coblee]

However, it is unlikely that I would have taken those coins and done that.  he others may have.  But we do have 4000 coins sitting idle earning no interest, so that is a cost (even if just an opportunity cost).

PatrickHarnett, I don't understand why it's unlikely that you would have taken those coins and invested with Pirate directly. For this round of PPT.A, your downside is exactly the same as if you deposited 846 btc with pirate and did compounding interest for 4 weeks. If pirate defaults, you lose 846 btc in both scenarios. But your upside is less with selling 3000 shares of PPT.A at 1.038. So no matter how you look at it, this round of PPT.A is strictly worse than just deposing most of the insurance fund with pirate.

If you don't agree with my analysis, then I'm willing to personally buy 3000 more shares of PPT.A at 1.038 from you. As long as you promise to give me 960 btc if pirate defaults.
You are effectively giving people a 33.7% interest rate, which is better than pirates 31% compounding rate.

[PatrickHarnett]

However, it is unlikely that I would have taken those coins and done that.  he others may have.  But we do have 4000 coins sitting idle earning no interest, so that is a cost (even if just an opportunity cost).

PatrickHarnett, I don't understand why it's unlikely that you would have taken those coins and invested with Pirate directly. For this round of PPT.A, your downside is exactly the same as if you deposited 846 btc with pirate and did compounding interest for 4 weeks. If pirate defaults, you lose 846 btc in both scenarios. But your upside is less with selling 3000 shares of PPT.A at 1.038. So no matter how you look at it, this round of PPT.A is strictly worse than just deposing most of the insurance fund with pirate.

If you don't agree with my analysis, then I'm willing to personally buy 3000 more shares of PPT.A at 1.038 from you. As long as you promise to give me 960 btc if pirate defaults.
You are effectively giving people a 33.7% interest rate, which is better than pirates 31% compounding rate.

I do not agree with your analysis.

For a start, I have other demands on funds that have longer term uses other than BS&T.  I reached a point with my deposit some time ago (around 1 March) where I considered 4000 was a sufficient exposure to a single point of failure.
Second, I have a portfolio to manage.  If you were investing and choose to put 100% into one asset, that is simply poor risk management and you need to consider expected returns.
Third, I have several strategies in play, and one is maintaining an overall level of funds in BTC.  Lately I have been retaining additional coins to meet business needs (such as long term finance and other asset purchases), and checking my position I am currently 2715.78 BTC above my preferred position  and partly because I extended a loan to a good friend rather than converting into funds for some of my other hobbies.

What you also fail to include in the strict math sense, is the fun aspect.  It's more interesting to me to be doing some other stuff.  Quite why I would accept 1.038 for more bonds, I am not sure, but if you wish to forward 3114BTC to me and have me pay you 3840BTC in four weeks time having put them into my BS&T account, then feel free to do so (but I have no particular reason to offer 960 coins in the event of a Pirate default) so as you have a deposit address, after all many people have coins with me getting a mere 1.5%/week and they are quite happy with the arrangement.

[coblee]

For a start, I have other demands on funds that have longer term uses other than BS&T.  I reached a point with my deposit some time ago (around 1 March) where I considered 4000 was a sufficient exposure to a single point of failure.
Second, I have a portfolio to manage.  If you were investing and choose to put 100% into one asset, that is simply poor risk management and you need to consider expected returns.
Third, I have several strategies in play, and one is maintaining an overall level of funds in BTC.  Lately I have been retaining additional coins to meet business needs (such as long term finance and other asset purchases), and checking my position I am currently 2715.78 BTC above my preferred position  and partly because I extended a loan to a good friend rather than converting into funds for some of my other hobbies.

What I'm trying to say is that the 960 insurance fund has the same risk exposure as your 4000 btc with Pirate directly. And without as much benefit at least for this round. Of course that is assuming you guys will pay up if Pirate defaults. So your 960 btc are lost the same way your 4000 btc are lost if Pirate defaults.

What you also fail to include in the strict math sense, is the fun aspect.  It's more interesting to me to be doing some other stuff.

That I can't argue with. Of course there's a fun aspect that's not captured by the math at all. It's why I sometimes play the lottery or play black jack or roulette. I know the odds are against me, but it's fun sometimes.

Quite why I would accept 1.038 for more bonds, I am not sure, but if you wish to forward 3114BTC to me and have me pay you 3840BTC in four weeks time having put them into my BS&T account, then feel free to do so (but I have no particular reason to offer 960 coins in the event of a Pirate default)

If there's no default insurance, then it's not the same deal anymore. Anyways, I was just trying to make my point and not really interested in spending 3114 btc.

[PatrickHarnett]

That I can't argue with. Of course there's a fun aspect that's not captured by the math at all. It's why I sometimes play the lottery or play black jack or roulette. I know the odds are against me, but it's fun sometimes.

I don't even play the lottery and casinos seem like a waste of time unless you're doing it for fun as you mention (maybe people watching and drinking beer with friends while ignoring horses race also qualifies), but we've wandered way off topic.  If I wanted to, I could have been all-in with BS&T and made some extra money, but the expected payoff tends to zero, just as it does if you play roulette repeatedly until your stake is gone..

The TL;DR version probably goes:  PPT isn't necessarily the highest paying investment for the guys that put up 4000 in backing coins, and there is a wealth transfer for some people if they snag bonds at a good price.

[filharvey]

At the end of the day the backers of ppt are backing an insurance scheme. If it is worth their while or not is not up to people to decide it is up to them. They are taking he risks and saying if pirate does fold they will pay a percentage of it. It is not up to the rest opus to decide what is an acceptable risk for each of them to take. It may not be good looking at numbers but they are offering the 7% return to people who cannot or do not have access to it.

If the ppt group want to continue to risk their funds to allow other people access to it, it is up to them, but personally I like it.

[MrTeal]

Has the insurance been increased to 4320BTC to cover both the decision to increase the number of bonds in each issue as well as the 6000 bonds issued in PPT.D?

[brendio]

Has the insurance been increased to 4320BTC to cover both the decision to increase the number of bonds in each issue as well as the 6000 bonds issued in PPT.D?

Well, there's still 36 PPT shares, but the latest price is now 120 BTC. 36 * 120 = 4320 BTC.

[MrTeal]

Has the insurance been increased to 4320BTC to cover both the decision to increase the number of bonds in each issue as well as the 6000 bonds issued in PPT.D?

Well, there's still 36 PPT shares, but the latest price is now 120 BTC. 36 * 120 = 4320 BTC.

Well yeah, but because the last one sold for 120 doesn't mean they've raised 4320 BTC. If the next one sold for 1,000,000BTC it's not like the fund would have 36M BTC backing it. I was wondering more if they actually have the 4320BTC safely stored somewhere or if they were just waiting for PPT.E to be recalled and the bond levels to return to normal.