Tomorrow afternoon, I will take part in a panel discussion at Baylor University entitled “Understanding the Financial Crisis”. Here’s the official press release from Baylor’s Hankamer School of Business. The event will be recorded tomorrow and available for viewing on the web by by no later than Oct. 20, 2008.

Anyway, here’s the line-up:

Moderator: Dr. Mark Dunn, Professor of Marketing and Associate Dean, Hankamer School of Business

Panel:

• Dr. Gia Chevis, Assistant Professor of Accounting

• Dr. James Garven, Frank S. Groner Memorial Chair of Finance and Professor of Finance & Insurance
  “Moral Hazard and Financial Hazard”

• Dr. Kent Gilbreath, E.M. and Thelma Stevens Chair of Private Enterprise and Entrepreneurship and Professor of Economics
  “The Perfect Economic Storm”

• Dr. William Reichenstein, Pat and Thomas R. Powers Chair of Investment Management and Professor of Finance
  “Investment Advice in Credit Crisis”

• Dr. David VanHoose, Herman W. Lay Chair of Private Enterprise and Professor of Economics

Here’s a time series graph of the CBOE volatility index (VIX) from January 2, 1990 through October 8, 2008:

Today, the VIX today hit an all-time high of 57.64 (after hitting all time highs of 52.05 on Monday and 53.68 on Tuesday). Since the mean of this series is 19.21 (based upon a total of 4,730 daily closing prices dating back to January 2, 1990), and its standard deviation is 6.47, today’s VIX is 5.94 standard deviations to the right of the mean. Obviously this is a very fat-tailed distribution, but it is nevertheless (morbidly) entertaining to point out that if the series were normally distributed, then one would expect to observe this extreme of an outcome once every 683,138,010 days that the financial markets are open. The number of trading days varies from year to year depending on what day of the week holidays fall on, but a rough guess is 52 weeks x 5 days per week = 260 less about 10 holidays = 250 trading days. So if we translate this into the implied number of years, the odds of this happening would come out to roughly once every 683,138,010/250 = 2,732,552 years.

Intrade yesterday announced a new binary futures contract, which pays off 100 Intrade points ($10) if the US economy suffers a depression sometime during 2009, and 0 Intrade points ($0) if it doesn’t. “Depression” for purposes of this contract is defined as a total decline in GDP equal to or greater than 10%. See http://www.intrade.com/news/news_288.html for specifics on the contract rules. The ticker symbol for this contract is US.DEPRESSION.09. The “good” news is that so far, no trades have occurred; there is a bid price of 5, and an ask price of 15.

Perhaps the more meaningful contracts are the US.RECESSION.08 and US.RECESSION.09 contracts, which represent (100,0) bets that the US economy suffers a recession sometime during 2008 or 2009. Both contracts define recession as two successive quarters of negative real GDP growth. The last trade for US.RECESSION.08 occurred at 50 and at 80 for US.RECESSION.09, but compared with the political contracts, trading volume is quite low and bid-ask spreads are very wide, which implies these contracts are relatively illiquid. For example, for US.RECESSION.09, there currently are bid prices ranging from 10 to 75, and ask prices ranging from 80-99.9.