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Good point.  It's always fun to speculate about "what if" history, anyway.

On Fri, Nov 13, 2009 at 5:02 AM, Stefan Wasilewski <[log in to unmask]>wrote:

> I listened to Andrew Sorkin (NYT) deliver his views 'behind the scenes' of
> the crash and asked him if we'd let LTCM go would we be in this mess.
>
> After a brief discussion we all agreed no, because whilst Bears , Morgans,
> Goldmans and Lehman's would have gone, the order was important and Lehman's
> going at that time would not have been as highly connected as ten-years
> later. Equally the sentiment would have reverberated globally and the
> idiot's that think they've 'survived' but still think "they've done nothing
> wrong" would not have got their positions in the first place.
>
> Ten-years is a long time in the economy and our society.
>
> Stefan
>
>
> On 13 Nov 2009, at 12:48, Doug McDavid wrote:
>
> Thanks, Stefan.  Yes, I probably should have made a more positive point
> rather than laughing at the poor guy that put up the original web site.  For
> all I know he may have gotten so rich from making all his clients rich, and
> has now retired incommunicado, which is the reason his site has not been
> updated for over a year.
>
> The more positive point I want to make is that these markets we're talking
> about, which are the sources of the data against which various mathematics
> can be applied, are very rich, complex, human social systems.  In the stark
> up and down of financial transaction tracings (a particular stock tracked
> over time, the FTSE open-close-high-low chart for 6 month, Brent oil futures
> for the last year, etc.) we see the interplay of thousands of traders, each
> with their personal or corporate purposes, fighting out the never-ending
> struggle between the bulls and the bears, the longs and the shorts, the
> buyers and sellers.  These charts are thin price traces, but their patterns,
> their reactions to events in the world, and their interactions across asset
> classes and financial instruments, provides a data set that can track an
> emotional landscape of fear and greed, as well as the underlying endeavors
> of the companies and industries whose buying and selling is tracked.  As an
> example, today it is fascinating to watch sentiment spread from one
> continent to another during the course of a trading day.  US markets are up
> at the open, supported by what the Asian and European markets have done
> overnight.  Some bad employment data are announced, and all the markets move
> in concert, some up more, some down, based on how that market or asset
> interprets the news.  VIX tracks volatility, and is generally interpreted as
> a binary indicator of prevalence of fear in the market.  Viewed
> systemically, couldn't there be much more that could be known about how
> markets may be understood as collective human emotion?  Williamson et al
> give us a nudge in this direction with the analysis of firm vs. market.
>
> The reason I mentioned the bubble and crash phenomenon, Stefan, is because
> of yet another yeomanly attempt going on right now to mitigate the latest
> bubble/crash, accompanied by promises that our bright and shiny, new
> whizbang regulatory regime being put in place as we speak, will break that
> boom and bust cycle forever.  This is whistling in the wind, and, as you
> say, is not even probably not even desirable, though it does create an
> interesting arms race between the regulators and the financial innovators.
>
> On Fri, Nov 13, 2009 at 2:27 AM, Stefan Wasilewski <[log in to unmask]>wrote:
>
>> To add to your point Nick the whole premise of B&S was wrong. It led many
>> that should have known better to say ' the world is a normal distribution
>> and so this won't probably happen in your lifetime' but people have a very
>> shaky understand of probability and they applied the data to Hungarian
>> Equities as well as the root study, US Bond Prices from 1934 - 1977
>> (Milken). They took the whole thing out of context.
>>
>> And to take Doug's point about avoiding them: You don't want to avoid
>> them, just manage them. If you put in all the controls to avoid then you've
>> lost the economy because we need volatility to make a profit at one level of
>> the system: It's how you view the whole that matters.
>>
>> Stefan
>>
>> On 13 Nov 2009, at 03:10, Nick Green wrote:
>>
>>  my point is there were probably theoretical mistakes in using normal
>> rather than power law assumptions. There were definitely practical mistakes
>> because there was no feedback on performance: sacrificing rationality for
>> commercial confidentiality. There was no public market in these secondary
>> instruments. That doesn't mean we abandon the method of quantitativedescription of processes. Anyhow Black and Scholes company went bust in 1998
>> a year after the Nobel so even emotional traders might have guessed
>> something was wrong. Like it or not you look at the trading history and
>> guess the future market price on the basis of current conditions- if you
>> know them. If you don't it's just luck as Taleb has it. Martingales work for
>> the house not the punter. These simple facts are getting lost in all the
>> vacuous posturing. Trivial to fix: set liquidity on the risk performance and
>> add a few percent for luck- just like always.
>>
>>
>> *From:* Doug McDavid <[log in to unmask]>
>>  *Sent:* Friday, November 13, 2009 1:23 AM
>> *To:* [log in to unmask]
>> *Subject:* Re: The world is deterministic
>>
>> Interesting erudition, but i think we're forgetting how this originated.
>> This guy was claiming he could predict (from past performance) how financial
>> markets will move.  The myth of the rational market has been debunked.
>> Animal spirits (Keynes) are loose, as always.  The quants and their bogus
>> so-called rationality and over mathematization of human emotions have pretty
>> much been discredited yet again in late 2008 and early 2009.
>>
>> Just be ready for the next bubble/crash.  They can't be be banned or
>> avoided.
>>
>> On Thu, Nov 12, 2009 at 4:24 PM, Nick Green <[log in to unmask]>wrote:
>>
>>>  Chaos is deterministic- but sensitive to initial conditions. When at
>>> Cardiff we found that chaotic oscillators could be forecast i.e. to find
>>> within 5% for the next 3 or 4 points- but this was interpolation off a hyper
>>> dimensional surface constructed from say 10 nearest neighbours.
>>>
>>> Indeed the difference in nearest neighbour variance for white noise
>>> was 20 times bigger than a chaotic signal. ( A sine wave would be four
>>> orders of magnitude variance smaller than white noise on say 1000 data
>>> points and ten nearest neighbours.)
>>>
>>> Extrapolation is where the problems really start i.e. futures have to
>>> include outlier forecasting. Mandelbrot and Taleb seem to be saying the
>>> variance around the mean is usually not standard normal it's skewed and not
>>> stationary i.e. data is generally of power law type not symmetric about a
>>> stationary mean. That means Wiener has to redo his treatment of the random
>>> walk, gambler's ruin etc. and trouble for the Law of Large Numbers when
>>> applied to physical systems. Black and Schools assumed the Wiener process to
>>> define their prices and to have a better chance they needed a Mandelbrot/per
>>> Bak (self-organized criticality - see wiki) power law. When you do the
>>> random walk it seems plausible that the frequency of steps longer and
>>> shorter than the mean is equal. But the step length can never be shorter
>>> than zero and may be infinitely long (the walker/actor evaporates or at
>>> least crosses the containing coherence boundary) or more simply can be long
>>> (and unbounded). The upper bound of the longest step length of a Brownian
>>> walk increases with time.
>>>
>>> At constant temperature in a long experiment the length of the longest
>>> step will increase with observation time- this is the simplest way to put
>>> it. Given these are abstractions of very large restricted n-body problems we
>>> are certainly in difficult territory. Experiments show power laws in the
>>> frequency of word use, size of cities, length of rivers, blood vessels,
>>> sizes of meteorites etc
>>> http://en.wikipedia.org/wiki/Power_law#Universality
>>>
>>> But recall Stafford applied Harrison and Stevens for testing the
>>> significance of a new data point (transient, trend or step change) so very
>>> short term forecasting only...Science and mathematics is certainly regards
>>> forecasting as its major concern. Pask would probably speak of the
>>> production of applicable descriptions. e.g. forecasting the length of
>>> wire to put a fence around an x by y rectangular field- even that gets
>>> tricky if the ground is not flat or x and y have astronomical values and
>>> thus need corrections from General relativity
>>>
>>> Was von F talking about the halting problem perhaps?
>>>
>>>  *From:* Alfredo Moscardini <[log in to unmask]>
>>> *Sent:* Thursday, November 12, 2009 1:03 PM
>>>  *To:* [log in to unmask]
>>> *Subject:* Re: The world is deterministic
>>>
>>>
>>> *I believe that it isan open system as it needs energy from the sun*
>>>
>>> *It is certainly a non-linear system and any non-linear system has the
>>> potential to be chaotic*
>>>
>>> *As far as I understand there are very narrow limits for many parameters
>>> and if they transgress the results are large i.e. small imput - large
>>> outcome which is a sign of Chaos*
>>>
>>> *I dont know what von Forster said about non-trivial machines but to me
>>> deterministic imples predictable*
>>>
>>> *Alfredo*
>>>
>>> *----- Original Message -----*
>>>
>>> *From*: Dirk Vriens <[log in to unmask]>
>>>
>>> *Date*: Thursday, November 12, 2009 12:14 pm
>>>
>>> *Subject*: Re: The world is deterministic
>>>
>>>
>>> > Dear Alfredo,
>>> >
>>> > Sorry for our intrusion into this discussion, but we would like to
>>> > know: if
>>> > the world is a chaotic open system, to which input is it open?
>>> > Input coming
>>> > from outside the world? Hmm, weird. Or input from within the world
>>> > - but
>>> > then one would rather use the term closed system, don't you agree?
>>> > And,besides, even though a system is deteministic it can still be
>>> > utterlyunpredictable (or transcomputational, as von Foerster
>>> > claims as he disusses
>>> > non-trivial machines).
>>> >
>>> > Kind regards,
>>> >
>>> > Jan Achterbergh,
>>> > Dirk Vriens
>>> >
>>> >
>>> > _____
>>> >
>>> > From: Forum dedicated to the work of Stafford Beer
>>> > [mailto:[log in to unmask]] On Behalf Of Alfredo
>>> > MoscardiniSent: donderdag 12 november 2009 11:32
>>> > To: [log in to unmask]
>>> > Subject: Re: The wo
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>>
>>
>>
>> --
>>
>> Doug McDavid
>> [log in to unmask]
>> 916-549-4600
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>
>
>
> --
>
> Doug McDavid
> [log in to unmask]
> 916-549-4600
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>
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-- 

Doug McDavid
[log in to unmask]
916-549-4600

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