Probability theory etc

[r.w.]

Nine, I'm glad we agree. On second thought, I think it's a case of sexual frustration. I mean, have you seen the guy!? But he's barking up the wrong tree thinking the intellectual airs are going to get him laid. Retired trader busy spending it works better. But he probably didn't make that much until he got into publishing.

 

[A Dashing Blade]

Agree he's got an irritating writing style, but, imo, it's one of those books that brings toegther existing, dispate ideas into a cohesive whole (Guns Germs and Steel was another one).

And, at the end of the day, he does demonstrate the utter and total uselessness of current statistical techniques in options/risk pricing.

 

[r.w.]

And, at the end of the day, he does demonstrate the utter and total uselessness of current statistical techniques in options/risk pricing.

Herein one of the issues lies, I think. Taleb can't get over the fact that the models aren't as pure and perfect as Plato's World of Ideas. In my experience often based on lack of understanding or a psychological/philosophical hang-up. Imperfect models can be useful too, and the question remains: What would we do without them? Resort to oracles and gurus like Taleb?

 

[temptrader]

Agree he's got an irritating writing style, but, imo, it's one of those books that brings toegther existing, dispate ideas into a cohesive whole (Guns Germs and Steel was another one).

And, at the end of the day, he does demonstrate the utter and total uselessness of current statistical techniques in options/risk pricing.

you would know that anyway if you tried any "system" that people sell.

you would know that anyway from simple elementary mathematics, all because something becomes vanishingly small in occurrence doesn't mean that it can't happen if the experiment is repeated long enough, and only one occurrence is necessary for catastrophic results.

Grant is referring to sampling without replacement, and sampling with replacement in the previous cases on his other posts.

 

[grantx]

RW,

Very true. He seeks academic/intellectual legitimacy. The only way he can achieve this is to concentrate on areas peripheral, or long-forgotten due to the negligible contribution to advancement. But Dynamic Hedging is a good book.

Surely Plato isn’t one of his models? I thought he was more David Hume and Karl Popper, both of whom enjoyed very short-lived fame.

Grant.

 

[A Dashing Blade]

. . . you would know that anyway from simple elementary mathematics, all because something becomes vanishingly small in occurrence doesn't mean that it can't happen if the experiment is repeated long enough, and only one occurrence is necessary for catastrophic results.
. . . .

Absolutely agree, but Talebs point is, I think, more succinctly demostrated by Mandelbrot whjo points out, with reference to the Mexican Peso devaluation in '97 (?) that, that had you traded every day since the big bang (5 billion-odd years ago), you would not have expected that event to happen if you used conventional ie guassian statistical techniques.

 

[r.w.]

Surely Plato isn’t one of his models? I thought he was more David Hume and Karl Popper, both of whom enjoyed very short-lived fame.

Grant,

It would appear so, but to me there's a strong streak of Platonistic absolutism in FBR. His arguments to denounce various models and concepts are of that nature, and his main thesis seems to be that Randomness is a metaphysical absolute.

Now, randomness as a metaphysical absolute is a difficult concept. Niels Bohr, who introduced randomness at the heart of physics, realised that. But not Taleb, needless to say. And one would expect some review of complexity and information theoretic notions of randomness, as well as the philosophical issues, in a book that purports its thesis with such bombasm.

And, as you point out, he uses empirism a lot...and that to argue the metaphysical absoluteness of randomness! Wouldn't pass for a philosophy dissertation at a good school. This is the main fallacy at the core of FBR, I think, and the way he argues it is almost humourous: "Look, I've been a big shot options trader. I've followed the markets for years, and it all looks pretty darn random to me. And if I can't see any patterns there, there aren't any. Hence, randomness is a metaphysical absolute."

Very interesting topic, but a shame that it got such poor treatment.

 

[SAINT]

If you like probability, you'll love 'Fooled by Randomness' by Nicholas N. Taleb. Great book!

 

[SAINT]

One would think the rewards from the financial markets would attract the very best mathematicians.Like many academics - what is beyond their capabilities is written off as if it were of little interest or possibility. The maths of forecasting could be very very profitable if it's at all possible.

Too many variables to forecast the markets. The game changes all the time. If it were possible there would be no volatility either as everyone would be sitting around the bid offer and and you'd need a huge account to make any money.

The swings, the emotions, the curveballs,the joy, the despair, the challenge are what make the markets imo! Black box trading systems are the closest thing to academic forecasting for profit but as shown last year, when an unexpected event hits, the system gets blown out!

 

[grantx]

Temp,

That’s it – sampling without replacement. Thanks, mate. Need to revise here, I think

Will also read up on Mandelbrot/Mexican when I have more time. Will start here:

"Mandelbrot Mexican Peso" - Google Search

Am I turning into a quant? It’s not for me, it’s for a friend.

Grant.

 

[MrGecko]

total coincidence, but when I was in Belize I met a lady who worked on the first Peso OTC option; it was for Coca Cola i think she said.

 

[grantx]

RW,

Apologies for the delay in acknowledgement.

I couldn't give your excellent post a rep ('spread it around', etc). So, "Reputation" for RW's post, #51. Oh, don't start whingeing Mr Gecko, you can have one as well ('kin 'ell).

“he uses empiricism a lot...to argue the metaphysical absoluteness of randomness.” He does call himself an Epistemological something or other. I’d like to see him incorporate philosophy of mathematics/numbers – that would interesting. But it’s probably too mainstream for him.

Anyone know where I can get hold of Mandelbrot’s Mexican Peso article? Can’t locate it on the net.

“In Belize”? Get you. “I met a lady who worked on the first Peso OTC option”. I think this may be a bad translation on your part. What she actually said was, “English, two dollar, sucky dicky”. You sad tourist.

Grant.

 

[grantx]

Mandelbrot papers:

Benoit B. Mandelbrot

Grant.

 

[Splitlink]

Too many variables to forecast the markets. The game changes all the time. If it were possible there would be no volatility either as everyone would be sitting around the bid offer and and you'd need a huge account to make any money.

The swings, the emotions, the curveballs,the joy, the despair, the challenge are what make the markets imo! Black box trading systems are the closest thing to academic forecasting for profit but as shown last year, when an unexpected event hits, the system gets blown out!

The Black Box turns into a Black Swan.

 

[Scripophilist]

The biggest problem with all theories and math is that it takes one person to create the idea, another to interpret it and another to press the button. All of which may fail for different reasons. I used to argue vigorously on a variety of points but even if you have valid ideas people still rubbish them so I just get on with it now. Everybody can read about it in the autobiography Identifying a great idea generally requires an element of modelling, implementing it successfully an element of psychology.

 

[r.w.]

RW,

Apologies for the delay in acknowledgement.

I couldn't give your excellent post a rep ('spread it around', etc). So, "Reputation" for RW's post, #51. Oh, don't start whingeing Mr Gecko, you can have one as well ('kin 'ell).

Grant, thank you for for kind words.

“he uses empiricism a lot...to argue the metaphysical absoluteness of randomness.” He does call himself an Epistemological something or other. I’d like to see him incorporate philosophy of mathematics/numbers – that would interesting. But it’s probably too mainstream for him.

Hope you don't mind me saying so, but I don't think the philosophy of mathematics has that much to do with it. If one tries to make sense of what Taleb seems to want to say, that book has already been written - in the context of academic philosophy. Popper deals with it in his Postcript to the Logic of Scientific Discovery, where he argues the case for indeterminism and also introduces his propensity interpretation of probability. He even uses a similar example to the theory that all swans are white: "all dogs have tails". For some reason, that book is not on the list of Popper references at the end of FBR...

I think, like Soros, that epistemology, in particular Popper's philosophy, is highly relevant for trading. In essence, trading is an epistemological undertaking, evidenced also by many threads on this site.

If you are interested in the philosophy of mathematics, the outstanding book imho is

Amazon.co.uk: The Mathematical Experience (Penguin Press Science): Philip J. Davis, Reuben Hersh: Books

Very accessible to the general public as well.

RW

 

[MrGecko]

Didn't Copleston say something about Black Swan's (and Pink elephants IIRC), in the context
of the Ontological argument?

I say this only to fit in; R.W. I haven't got a f*cking clue what you are on about.

 

[grantx]

Rw,

On a non-philosophical and academic level, Popper was always an outsider, a maverick and a reactionary in that he was constantly rebelling against what he regarded as mainstream, Marxist bias in academia (post-revolutionary Russia). Hence his rejection of the Vienna Circle (Wittgenstein, etc) but probably more accurately, they didn’t want him in. His reactionary side is apparent in The Open Society and Its Enemies (against Plato and Marx, for example)

I don’t think I read Logic of Scientific Discovery so I’m not familiar with the Postscript (was this an afterthought, revision or correction?) but I did read Conjectures and Refutations in the context of Philosophy of Science.

Re his use of swans, this originated with Hume in the 18th century in the context of the limitations of inductive logic but more importantly, an attempt by Hume to give intellectual legitimacy to the Church’s (Bishop Berkeley’s) opposition to Newton’s science, specifically that the earth is not the centre of the universe – contrary to the basic tenet of Christian belief. Like Hume, Popper was not concerned with the rationalism or justification of the physical sciences but with the foundations of belief in the social sciences (or theology); and for Popper, this centred on Marxism.

The irony is, Popper found widespread support in the 1960’s from the French left-wing, social science academics, especially sociologists.

For me, Taleb compounds ambiguity with half-baked theories derived from half-baked thinkers.

Thanks for the reference. I’ve only read Frege (impenetrable).

Grant.

 

[charliechan]

I’d like to see him incorporate philosophy of mathematics/numbers – that would interesting. But it’s probably too mainstream for him.

Grant.

taleb has a website with several of his papers. some of them are little more than equations - not really general public stuff unlike his books.

look at lesson 6 as an eg.

Mathematical and Quantitative Papers

 

[grantx]

Mr ($2) Gecko,

You could be right re Copleston. He did a history of philosophy series - 5-6 volumes. I've got volume 2 dealing with mediaeval philosophy, which is basically European theological beliefs (Platonists and Aristotelians) with regard to the Christian fathers. So your "Ontological" point should be in here.I'll check your reference.

Charles,

Thanks for the reference. I'll look at these but may have to come back re clarifiaction of anything "quanty".