A lot of banking businesses are mysterious, but the exotic-derivatives business is actually very straightforward and normal. It is a sort of manufacturing business. You think about a product that customers might want, a need that they have that can be filled by a product you can build. Once you have an idea for a product, you design it and figure out how to manufacture it efficiently.

Unlike in a regular manufacturing business, you are not exactly manufacturing the product, delivering it to the customer and walking away. In fact manufacturing a derivative normally requires continual trading — “dynamic hedging” — throughout its life. You are manufacturing it prospectively; you sign up the trade, give the customer her money, and then spend the life of the trade trying to make it worth what your model said it was worth.

Triple lizard! Wouldn’t you buy a triple lizard just for the joy of saying it? “Give me three triple lizards please!” Who even cares what they are, they’re triple lizards.

source: ML