On Sunday, November 9, 2003, at 01:50 PM, Danny Van den Berghe wrote:
Next suppose the market value of the 10g bottles doubles to 20g
The value of our portfolio is up to 90g with still 150 shares outstanding.
This means each share has gone up in worth to 0.6g
To redeem the 30g botlle you need only 50 shares now.
Yes, I find this situation interesting.
We go from this:
10g (25 shares) 30g (75 shares) 10g (25 shares) 10g (25 shares) ----------------------- 60g (150 shares)
To this:
20g (33.3 shares) 30g (50 shares) 20g (33.3 shares) 20g (33.3 shares) ------------------------- 90g (150 shares)
In terms of grams, the price of the 10g bottles increased by 100%, and the price of the 30g bottle remained constant.
In terms of shares, the price of the 10g bottles increased by 50%, and the price of the 30g bottle decreased by 33.3%.
Note however that the price of the 30g (50 share) bottle is precisely 50% higher than the price of the 20g (33.3 share) bottle regardless of whether it is priced in grams or shares.
I find these distinctions interesting and they seem to have some relevance to your assertion below that the portfolio could be priced directly in shares without reference to some other underlying homogenous asset. (Though I haven't thought it all the way through yet.)
Mathematically you don't strictly need another homogenous asset currency to
prize your wines.
The homogenous currency can be the e-wine share itself, but then your
mathematics become a little more complicated.
I find this assertion very interesting and would like to see how it might be done and how it relates to my little arithmetical observations above.
I would expect that if the value of a bottle doubles, its price should double. If the value of a bottle remains constant, its price should remain constant. Yet if you "price" the bottles in our example directly in terms of shares, the prices increase by only 50% in the first case and decrease by 33.3% in the latter case. So I am not yet convinced that pricing in terms of shares alone without any reference to some other homogenous system of units is possible.
-- Patrick
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