June 10th, 2016, 3:20 pm
so I think there are three things you are asking..1. You are asserting that hedge funds ignore cash and carry type args? that cannot be true.2. You want to know how hedge funds determine that there is value in a particular trade? there are a multitude of ways.3. prices are changing all the time? this is true.================================================I think you are confusing price and value. I am not a buy side participant BUT with them in my experience, they usually have a view. Whether it is because of the weather, what they ate for breakfast, the news or some statistical model beats me. As a sell side participant your bread and butter (mostly) comes from showing these people prices (i.e. a market). Therefore as long as you can capture enough of the spread that you show them and hedge yourself you have done ok. Broadly, the key difference in my opinion is, the sell side participant should have theoretically hedged himself and therefore doesn't care where the price goes from trading.The hedge fund on the other hand is fully aware of the price (as they are in the business of ripping off, not getting ripped off) but it is their view that the value is different from the price (in this sense the contract is mispriced) and thus if they are correct, the price should somewhat align with their view of the value over time.As to actual strategies I have no idea, but I would definitely say that it can be more complicated than an equation. Otherwise I would almost surely start off my own fund from my kitchen to find these interesting opportunities.