Slices and products.
Each range is cut into slices. Every product is a set of them.
Why slices.
- Every product draws on the same escrow, so there is one pool.
- A product costs the average of its slices, so prices are exact.
- The other side of any product trades in the same slices, so there are more exits.
Building a product.
Pick a run of slices. Buy them in one transaction. A product that doesn't line up with the slices can't be priced, so products use whole slices only.
Example: US high yield credit.
| Product | Range | Slices |
|---|---|---|
| Full | −30% to +20% | All ten |
| Crash | 0% to +20% | The top four |
| Your own | For example −5% to +15% | Any run of whole slices |
Since 2007, the index ended between −10% and −5% in 34% of windows, and above +15% in 1%.