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John Creighto
Mar14-12, 02:00 PM
P: 813
Quote Quote by Jim Kata View Post
How can the swaps market be valued at over 700 trillion dollars, yet the world's entire GDP is only 60 trillion dollars? Is there more insurance in the world than there is value in the world?
To equate a differentail quanity (like GDP) to a state quanity like the value of some asset you need some way of putting them in common terms like present value:

The total value of assets can exceed the net value because of leverage and cancalation effects in risk exposure. In the case of swaps if you ensure both postions your risck cancels out. Now in a perfectly efficient market a swap market a given postion should be neutral when purchased in terms of asset value but as it matures it may gain or lose value. The oppostite postion would respond in the opposite way. Assets as a whole only increase if the people who end up with a losing postion don't sell assets to maintain a constant leverage.

I will need to give some more thought to say much more.