Surplus of Jouissance Framing the Feminine and the Pervert. Drunken Risibility.

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The feminine position towards jouissance also moves beyond the phallic signifier. The woman does not come under the auspice of the paternal constraint of the phallic word, going as far as to sacrifice herself to unlimited jouissance suggesting a thorny ostracism of the paternal despot in his barbarous Will-to-Jouissance. Confronting the risk of turning these two parallel positions into a hazardous equation is locating the difference in the woman’s efforts to deviate from the function of the phallic signifier, where the woman still tries to relate her jouissance to the signifier as she tries to talk about it. This means that she does not disavow the phallic signifier as the pervert does, which explains why she is not placed completely outside the phallic function, on the side of unlimited fatal jouissance, something that would turn her into a callous figure.

Sade occupies the perverse frame in terms of jouissance, which is different from feminine jouissance. Although the woman slips away from the phallic function, she still tries to discover channels for relating her jouissance to the symbolic and manage to speak about it. The woman is not fully inscribed in the symbolic, for their structures are marked by a nucleus that persists and goes beyond symbolic boundaries: this is the object a, the remainder of lost jouissance. The pervert situates himself in the position of the object of the drive, whereas the woman tries to pertain not to this object, but its lack, namely the phallus, without fully succeeding in this. There is a surplus enjoyment in both positions pointing towards the new possibilities that the feminine position opens for ethics.

However, even if the woman tries to fasten her jouissance to the phallic function, unlike the pervert, it is precisely this surplus of jouissance that frames both the feminine and the perverse position. Moreover, given that lack and excess are tautological notions for Lacan, in what way did a pervert embody the lack in the drive and how is it different from embodying the excess of the feminine? Despite efforts to separate the two, one thing remains: both the pervert and the woman bear upon a jouissance beyond the limits of the symbolic, where common moral designations become impaired.

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Delta Hedging.

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The principal investors in most convertible securities are hedge funds that engage in convertible arbitrage strategies. These investors typically purchase the convertible and simultaneously sell short a certain number of the issuer’s common shares that underlie the convertible. The number of shares they sell short as a percent of the shares underlying the convertible is approximately equal to the risk-neutral probability at that point in time (as determined by a convertible pricing model that uses binomial option pricing as its foundation) that the investor will eventually convert the security into common shares. This probability is then applied to the number of common shares the convertible security could convert into to determine the number of shares the hedge fund investor should sell short (the “hedge ratio”).

As an example, assume a company’s share price is $10 at the time of its convertible issuance. A hedge fund purchases a portion of the convertible, which gives the right to convert into 100 common shares of the issuer. If the hedge ratio is 65%, the hedge fund may sell short 65 shares of the issuer’s stock on the same date as the convertible purchase. During the life span of the convertible, the hedge fund investor may sell more shares short or buy shares, based on the changing hedge ratio. To illustrate, if one month after purchasing the convertible (and establishing a 65-share short position) the issuer’s share price decreases to $9, the hedge ratio may drop from 65 to 60%. To align the hedge ratio with the shares sold short as a percent of shares the investor has the right to convert the security into, the hedge fund investor will need to buy five shares in the open market from other shareholders and deliver those shares to the parties who had lent the shares originally. “Covering” five shares of their short position leaves the hedge fund with a new short position of 60 shares. If the issuer’s share price two months after issuance increases to $11, the hedge ratio may increase to 70%. In this case, the hedge fund investor may want to be short 70 shares. The investor achieves this position by borrowing 10 more shares and selling them short, which increases the short position from 60 to 70 shares. This process of buying low and selling high continues until the convertible either converts or matures.

The end result is that the hedge fund investor is generating trading profits throughout the life of the convertible by buying stock to reduce the short position when the issuer’s share price drops, and borrowing and selling shares short when the issuer’s share price increases. This dynamic trading process is called “delta hedging,” which is a well-known and consistently practiced strategy by hedge funds. Since hedge funds typically purchase between 60% and 80% of most convertible securities in the public markets, a significant amount of trading in the issuer’s stock takes place throughout the life of a convertible security. The purpose of all this trading in the convertible issuer’s common stock is to hedge share price risk embedded in the convertible and create trading profits that offset the opportunity cost of purchasing a convertible that has a coupon that is substantially lower than a straight bond from the same issuer with the same maturity.

In order for hedge funds to invest in convertible securities, there needs to be a substantial amount of the issuer’s common shares available for hedge funds to borrow, and adequate liquidity in the issuer’s stock for hedge funds to buy and sell shares in relation to their delta hedging activity. If there are insufficient shares available to be borrowed or inadequate trading volume in the issuer’s stock, a prospective issuer is generally discouraged from issuing a convertible security in the public markets, or is required to issue a smaller convertible, because hedge funds may not be able to participate. Alternatively, an issuer could attempt to privately place a convertible with a single non-hedge fund investor. However, it may be impossible to find such an investor, and even if found, the required pricing for the convertible is likely to be disadvantageous for the issuer.

When a new convertible security is priced in the public capital markets, it is generally the case that the terms of the security imply a theoretical value of between 102% and 105% of face value, based on a convertible pricing model. The convertible is usually sold at a price of 100% to investors, and is therefore underpriced compared to its theoretical value. This practice provides an incentive for hedge funds to purchase the security, knowing that, by delta hedging their investment, they should be able to extract trading profits at least equal to the difference between the theoretical value and “par” (100%). For a public market convertible with atypical characteristics (e.g., an oversized issuance relative to market capitalization, an issuer with limited stock trading volume, or an issuer with limited stock borrow availability), hedge fund investors normally require an even higher theoretical value (relative to par) as an inducement to invest.

Convertible pricing models incorporate binomial trees to determine the theoretical value of convertible securities. These models consider the following factors that influence the theoretical value: current common stock price; anticipated volatility of the common stock return during the life of the convertible security; risk-free interest rate; the company’s stock borrow cost and common stock dividend yield; the company’s credit risk; maturity of the convertible security; and the convertible security’s coupon or dividend rate and payment frequency, conversion premium, and length of call protection.