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 quantitative description 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 > 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 > 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 > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ For > more information go to: www.metaphorum.org For the Metaphorum > Collaborative Working Environment (MCWE) go to: www.platformforchange.org > METAPHORUM eList Archive available at - https://listserv.heanet.ie/ucd-staffordbeer.html > Archive of CYBCOM eList available at - http://hermes.circ.gwu.edu/archives/cybcom.html > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ For > more information go to: www.metaphorum.org For the Metaphorum > Collaborative Working Environment (MCWE) go to: www.platformforchange.org > METAPHORUM eList Archive available at - https://listserv.heanet.ie/ucd-staffordbeer.html > Archive of CYBCOM eList available at - http://hermes.circ.gwu.edu/archives/cybcom.html > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ > > > > -- > > Doug McDavid > [log in to unmask] > 916-549-4600 > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ For > more information go to: www.metaphorum.org For the Metaphorum > Collaborative Working Environment (MCWE) go to: www.platformforchange.org > METAPHORUM eList Archive available at - https://listserv.heanet.ie/ucd-staffordbeer.html > Archive of CYBCOM eList available at - http://hermes.circ.gwu.edu/archives/cybcom.html > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ For > more information go to: www.metaphorum.org For the Metaphorum > Collaborative Working Environment (MCWE) go to: www.platformforchange.org > METAPHORUM eList Archive available at - https://listserv.heanet.ie/ucd-staffordbeer.html > Archive of CYBCOM eList available at - http://hermes.circ.gwu.edu/archives/cybcom.html > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ For more information go to: www.metaphorum.org For the Metaphorum Collaborative Working Environment (MCWE) go to: www.platformforchange.org METAPHORUM eList Archive available at - https://listserv.heanet.ie/ucd-staffordbeer.html Archive of CYBCOM eList available at - http://hermes.circ.gwu.edu/archives/cybcom.html ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~