inverse function
in [Lisp]
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From: Tim Bradshaw on 22 Feb 2010 16:02 On 2010-02-22 20:27:40 +0000, Tamas K Papp said: > I would love to continue this discussion, but it is quite off-topic, Nothing is off-topic on CLL.
From: Tim Bradshaw on 22 Feb 2010 16:10 On 2010-02-22 18:50:13 +0000, Ron Garret said: > Because you can do the > Right Thing and the collapse will happen anyway, because everyone *else* > is an idiot. I think that you may also have the option of doing the right thing and having your orgnisation survive as independent of the state and thus in a far better position to prosper post-apocalypse
From: Tamas K Papp on 22 Feb 2010 16:56 On Mon, 22 Feb 2010 21:01:03 +0000, Tim Bradshaw wrote: > On 2010-02-22 19:13:37 +0000, Tamas K Papp said: > > [I agree on the efficient-market stuff of course] > >> Physicists are employed in this industry because they have been trained >> to deal with the math --- mostly continuous time differential equations >> and statistics. The rest is easy to pick up on a superficial level, >> but lacking training in economics, what they are doing is mostly >> mechanical. The models they are using are not that sophisticated, and >> since there is only so much information you can extract from data using >> pure statistical methods (without economic ingredients beyond >> no-arbitrage), you can't expect a lot from them. For example, most >> pricing "models" calculate the "fundamentals" from today's prices >> (basically inverting a bijection), which they use to calculate other >> prices, but they don't really care if the "fundamentals" are different >> from one minute to the next. > > I think it's more complex than this, or at least I'm more disapointed in > the physics people than this. It's pretty obvious that the models they > were using were somewhere between extremely simplistic and wrong. There > was some famous statement from someone early in the crisis (at Goldman > Sachs?) about seeing "25 standard-deviation events" on several days in a > week. Well, that's just rubbish: if you're seeing things that your > model thinks are that rare then your model is wrong in pretty major > ways. What he (I assume he) should have said is "clearly our model is > no good and we have a big problem" (and that probably is actually what > he meant). > > So I'm disapointed in the physics people because for some significant > time (many years) they just tweaked these models rather than stopping > and thinking about the actual way things behaved and understanding that > the models had enormous deficiencies. Of course the financial rewards > for not doing that may have been compelling, and I can understand that. > On the other hand if they *had* stopped and thought, and assuming they > could have persuaded the organisations they worked for, then those > organisations might have survived as other than appendages of the state, > which would have been a good thing. To a certain extent, I agree with you. But the problem is very hard, and it requires thinking in terms of economic models (vs purely statistical ones), and general equilibrium (instead of partial equilibrium concepts). I don't think that anyone without serious training in economics has a chance. And moreover, progress is quite slow, at least on the scale of financial companies. They don't have the incentive to employ people who do basic research, so I don't blame them. Nowadays, most universities have a graduate program in "financial engineering" or similar, and graduates from these programs are starting to displace physicists (some would argue that they have already done so in certain areas). Nowadays, students who want to work as quants can go straight to these programs, so physicists can concentrate on physics, which is just as well. > Of course, we all know the crisis is *actually* because they all used > Java/C#/C++ instead of Lisp. Actually, the crisis occurred because some people failed to put earmuffs around their special variables. Tamas
From: Ron Garret on 22 Feb 2010 18:47 In article <7ugcspFmssU1(a)mid.individual.net>, Tamas K Papp <tkpapp(a)gmail.com> wrote: > On Mon, 22 Feb 2010 21:01:03 +0000, Tim Bradshaw wrote: > > > On 2010-02-22 19:13:37 +0000, Tamas K Papp said: > > > > [I agree on the efficient-market stuff of course] > > > >> Physicists are employed in this industry because they have been trained > >> to deal with the math --- mostly continuous time differential equations > >> and statistics. The rest is easy to pick up on a superficial level, > >> but lacking training in economics, what they are doing is mostly > >> mechanical. The models they are using are not that sophisticated, and > >> since there is only so much information you can extract from data using > >> pure statistical methods (without economic ingredients beyond > >> no-arbitrage), you can't expect a lot from them. For example, most > >> pricing "models" calculate the "fundamentals" from today's prices > >> (basically inverting a bijection), which they use to calculate other > >> prices, but they don't really care if the "fundamentals" are different > >> from one minute to the next. > > > > I think it's more complex than this, or at least I'm more disapointed in > > the physics people than this. It's pretty obvious that the models they > > were using were somewhere between extremely simplistic and wrong. There > > was some famous statement from someone early in the crisis (at Goldman > > Sachs?) about seeing "25 standard-deviation events" on several days in a > > week. Well, that's just rubbish: if you're seeing things that your > > model thinks are that rare then your model is wrong in pretty major > > ways. What he (I assume he) should have said is "clearly our model is > > no good and we have a big problem" (and that probably is actually what > > he meant). > > > > So I'm disapointed in the physics people because for some significant > > time (many years) they just tweaked these models rather than stopping > > and thinking about the actual way things behaved and understanding that > > the models had enormous deficiencies. Of course the financial rewards > > for not doing that may have been compelling, and I can understand that. > > On the other hand if they *had* stopped and thought, and assuming they > > could have persuaded the organisations they worked for, then those > > organisations might have survived as other than appendages of the state, > > which would have been a good thing. > > To a certain extent, I agree with you. But the problem is very hard, > and it requires thinking in terms of economic models (vs purely > statistical ones), and general equilibrium (instead of partial > equilibrium concepts). It's even worse than that because the models themselves can affect the system (by affecting people's behavior). But no model can fully model itself (if it could you could solve the halting problem) so any system that is affected by a model must necessarily display unpredictable behavior relative to that model. There's probably a theorem in there somewhere. > I don't think that anyone without serious > training in economics has a chance. I don't think anyone *with* serious economic training has a chance. rg
From: Paul Wallich on 22 Feb 2010 20:22
Tim Bradshaw wrote: > On 2010-02-22 19:13:37 +0000, Tamas K Papp said: > > [I agree on the efficient-market stuff of course] > >> Physicists are employed in this industry because they have been >> trained to deal with the math --- mostly continuous time differential >> equations and statistics. The rest is easy to pick up on a >> superficial level, but lacking training in economics, what they are >> doing is mostly mechanical. The models they are using are not that >> sophisticated, and since there is only so much information you can >> extract from data using pure statistical methods (without economic >> ingredients beyond no-arbitrage), you can't expect a lot from them. >> For example, most pricing "models" calculate the "fundamentals" from >> today's prices (basically inverting a bijection), which they use to >> calculate other prices, but they don't really care if the >> "fundamentals" are different from one minute to the next. > > I think it's more complex than this, or at least I'm more disapointed in > the physics people than this. It's pretty obvious that the models they > were using were somewhere between extremely simplistic and wrong. There > was some famous statement from someone early in the crisis (at Goldman > Sachs?) about seeing "25 standard-deviation events" on several days in a > week. Well, that's just rubbish: if you're seeing things that your > model thinks are that rare then your model is wrong in pretty major > ways. What he (I assume he) should have said is "clearly our model is > no good and we have a big problem" (and that probably is actually what > he meant). > > So I'm disapointed in the physics people because for some significant > time (many years) they just tweaked these models rather than stopping > and thinking about the actual way things behaved and understanding that > the models had enormous deficiencies. Of course the financial rewards > for not doing that may have been compelling, and I can understand that. > On the other hand if they *had* stopped and thought, and assuming they > could have persuaded the organisations they worked for, then those > organisations might have survived as other than appendages of the state, > which would have been a good thing. "The market can stay irrational longer than you can stay solvent." So the job of the modelers is not to figure out what the values "really" are, but rather what price some other trader employing a bunch of very similar models will put on the same set of securities. Occasionally reality intrudes in a particularly ugly way, but most of the time you will go out of business if your models (and thus decisions) differ substantially enough from those of the other people in the market, because you won't be able to buy or sell, even if you're "right". The metaphoric implications for Lispes are, of course, pretty clear. paul |