The summer is here and I wanted a convertible sports vehicle. First a friend told I should get a porsche. I don’t like the look, boring, and as a quantitative guy I was looking up the statistics: it basically shows Porsche guys don’t get laid.

Second we possible have peak oil (not for sure, but possible) and most sports cars gurgles a lot of gasoline. And let us not forget that the oil age has made many of us out of shape. We simply relax too much. No we don’t drive too much, that is the wrong conclusion. We simply drive the wrong type of Vehicle. I wanted to drive a sporty convertible and get into peak shape at the same time as I am getting ready for the possibility of peak oil. Is this possible?

What about a sports convertible that uses zero gasoline, no electricity (except for signal lights etc.), looks nice and are environmental friendly, do it exist?

Yes, after some “research” on the Internet I ended up ordering a sports convertible from a company in Netherlands: Sunrider:

Gasoline usage = Zero liter per mile, hard to beat that one!

CO2 emission per mile = Extremely low. zero if you don't breath, but you will breath a lot, especially up-hill.

Price = excellent compared to ugly gasoline gurgling sports cars.

Environment friendly = Excellent, hard to beat.

City parking = Extremely easy to park.

Annual expenses = Very small, no registration needed in most countries.

Sporty look and sporty feel = you feel very sporty going up-hill sweating li ke crazy.

Passengers = Only one sports-seat, so if you pick up a girl she have to sit on your lap.

Engine= It do not come with standard engine, but mine has a very strong engine two-cylinders (my legs). Warning if you are a girlman and order similar vehicle do not expect it to operate as a sports convertible (like mine).

Fuel: bananas, bread, rice, orange juice, pasta, pizza, milk, and even alcohol (not recommended)

After waiting months I finally got my convertible. After cruising around for two days, burning a lot of calories, 50km per hour on the flat and much more downhill is no problem. Peak oil sports convertibles are wonderful!

I was just giving a talk at Derivatives Week Stockholm. NASDAQ OMX have really been successful at creating a great annual event (even excluding my talk ;-), close to 400 people attending the main seminar, which was a record since they started with Derivatives Week four years ago.

I also got time to visit the Vasa Ship . The ship was built for King Gustavus in 1626 and sank just 2 nautic miles on her maiden voyage (wikipedia). If no one had taken the job getting this great ship up from the bottom of the sea in the 1960’s it could at some point only be considered a legend that some people possibly would claim was not true. It is amazing how well conserved this wooden ship was even after 300 years at the bottom of the sea. This was at around the same time derivatives trading was quite active in Amsterdam, more and more sources of ancient derivatives literature are re-discovered.

As a Norwegian I am ashamed to say I know New York and London much better than Stockholm. After this trip I must say Stockholm now is one of my worlds favorite cities, it has so much to offer. I had been there before, but only on one-day business trips. The summer in Scandinavia is just fantastic!

Enjoy the summer (if on the summer side of the earth, if not fly there).

”They could not destroy THE PROBABILTY MAN, but could sentence him to undo the damage he had done.”

These are not my words, but from the back cover of a little book published in 1972 (by Brian N. Ball). However these brilliant words fits well into the ongoing quant-finance debate. Probability Men in academia and practice relay too much on probabilities, probabilities that often are unknown in practice, in particular for big impact events,

”THE PROBABILITY MAN” is the title of a book I bought only because the great title, I knew nothing more about the book at time of ordering it (only paid few dollars for it). The book was not what I expected. It was a short fiction novel (175 pages) that I still not have got time to read and not sure I ever will read it from A to Z, but I browsed through a few pages the other day. A few interesting concepts are described in this book:

“He was given a Probability circuit….”

“I had to change the probabilities, somehow…” (Wow this is actually a very important concept in the article I am writing on just now)…

From the end of the book:

“…the Probability Man at the center of things! Probability Man! No! If anything, I’ll be the Uncertainty Man in the Frames!”

“We show the Alien how we can bring logic and order in a random situation. We show the Alien how probability works!”

“A new Genekey isn’t outside the Possibility Space,” said the third Guardian. “It’s and extreme conjecture, but it’s a possible factor.”

Unfortunately I am afraid Aliens will need to teach us proper probability calculus before we tell them how to relay too much on uncertain tail probabilities!

By the way we need more Probability Women (aliens) in quant finance! It is an interesting field with lots of unsolved challenges.

Food prices are rapidly raising and the dollar has been falling even against other inflating FIAT currencies.

Thomas M. Nicol, Secretary of the Honest Money League published in October 5 - 1878 Boston a little booklet with the title “FIAT Money or Resumption”, let me cite a few words from that old booklet:

“The rock is a fitting symbol of the position of gold and silver as money. For thousands of years they have stood ‘the money of the world,’ as nothing else has stood. Often and often the inflated waves of paper, blown by the windy words of ignorance and fanaticism, have dashed against and over this monetary rock, at times completely obscuring it from view. And in their madness they have wrecked ships, ruined hopes, and destroyed lives in trusted to their keeping. But the rock was unharmed; and when the wind of words had exhausted its force, and the waves of paper had settled back to their natural place and level, the rock of gold appeared again as friendly as ever. And if the credit of a nation and the money of a people are founded on gold, the wind may blow, the rain fall, and the storms beat upon them, but they will not fall, for they are ‘founded on a rock’”

Most gold-based monetary systems have been fractional reserves systems only (only fractional backing with gold and silver). This means the money supply can be inflated by credit and contracted, and during war many countries have tried to cheat on their fractional reserve system, printing even more paper than they could according to their fractional gold reserve requirements. A solid rock must probably be based on a 100% backed "commodity" money, gold and silver stand even today as clear candidates for such a monetary system. Will we see it, unlikely near term…well it do not need to be a commodity or anything physical but must be rigid and not possible to counterfight, not even legally, easier said than done I guess....

Quant-Finance Art is a web page where professional art related to quantitative finance are illustrated (and potentially sold to serious Hedge Fund Billionaires).

Trading is partly an Art that not can be fully understood by non-traders including Quants.

SLIDE SHOW

Quant-Finance Art

A few days ago I was visiting the StoneHedge, sorry I mean Stonehenge. I waked up very early in the morning to be there at sunrise and before it was overrun by (other) tourists.

Archaeology is the science that studies human cultures through the recovery, documentation and analysis of material remains and data.

Archeologist have done an enormous amount of important discoveries, but at the same time they have a tendency to enforce their own ideas and views “upon” the ancient without taking into account the empirical evidence or lack of empirical evidence. Instead of telling the truth: that they not have enough information yet or that they simply do not fully understand what was going on they have a tendency to come with conclusion that fit their fixed world view rather than looking closely at the data.

In finance it is typically financial economist that do Quant-Archeology. Many of them have been digging out valuable sources and information. But from what I recently have seen they are often misinterpretate serious points of what they find. If you dig into how traders operated in the ancient past it helps to see it from a traders perspective and not from a geometric Brwonian motion perspective. The world had fat-tails back then and it still has.

More on this later, possibly I will write a few papers about this or if I get time even another book. (first I have to finish up a non-financial book project)

By the way the first part of stonhenge (according to Archologist) probably dates back to around 3000 B.C (and some very early parts possibly 8000 B.C). Read a few books about the Stonhenge and you will be amazed.

Forward contracts have supposedly been found written on clay tablets from Mesopotamia dating about 1700 B.C). Derivatives are not so new either.

I am currently digging out more ancient books on option pricing...in some dusty corners of the world. There are plenty of Quant-Archeology to be done, both with repsect to new discoveries and new and better interpretation!

Oslo May 9:

Paul Wilmott came over from London and gave a wonderful talk about Black Jack and the Kelly criterion. I followed up with a speech around my new book Models on Models. In particular I focused on the non-Robustness of delta hedging to get risk-neutral valuation, and then how to hedge options with options as well as the partly forgotten and ignored ancient knowledge of option trading, hedging and pricing.

About 120 people attending, and there was hardly space for more. It was all held in nice surroundings at the Oslo Stock Exchange. The people at the Exchange had done a wonderful job putting it all together.

After the presentations there was a panel debate, and then refreshments with opportunity to take a look at some derivatives ”art” and lively discussions about derivatives, math, art, trading..... lasting long past midnight (for the most hard core "quants").

The book is now in print, but I have not seen it yet, I hope to have it in my own hands next week!

Believe it or not, the last time I actually had a minor car accident a low probability event (in addition to the accident) happened (about 3 years ago). I was stopping in front of a red light when someone crashed my car from the behind at very low speed. We both pulled over to the sideline. Both walking out from the cars saying hello to each other. I don't remember, but I guess I at the same time told my name. He then asked me if I had written an option book. Somewhat surprised I told him yes. He told he had been reading my book and that he liked it and that he worked for the investment bank just “across” the street. I guess publishing in quant finance the probability of having readers crashing into your car is very low indeed (at least if the book is not personally attacking someone). The fact that this was very close to the building of an investment bank (in Stamford CT) increased the odds, but still the odds where very low. Every probability is conditional. I had two minor accidents the last 7 years. Both just outside this building, both time someone crashing into my car, but the other guy crashing my car I think for sure never had or never will read my books.

Anyway I prefer readers of my books to crash into my car (at very low speed, and preferabely next time a nice lady) rather than I crashing into their car, otherwise I am afraid it could result in very bad book reviews.

PS his insurance company was good and took well care of damage and gave me a good rental car.

If something minor “unlucky” happens with me I try to remind myself it potentially saved me from something much worse. One evening last month my car would suddenly not start and I got stuck in the middle of nowhere. The next day the car started as normal. Two mechanics (one looking at it when it not would start and one the day after) could not figure out why it suddenly not would start and then suddenly start. That evening instead of getting frustrated I told myself this potentially saved me from a car crash or something else. I will of course never know if this was the case, but it makes you look positive at episodes you normally could get very frustrated from. There are plenty of cases like this in life where you never will know the alternative scenario/path. Life is different than Monte Carlo simulation; at least in THIS life you only run one path (if we are re-incarnated or borne again that is a different story) and typically we will never know the alternative path.

In a few cases with very high probability we know the alternative life-path. Some years ago I was visiting the town St. Pierre on the French-Caribean island of Martinique. In the same town in an evening in 1902 Ludger Sylbaris ended up in a bar fight and was arrested and locked in a single-cell, partially-underground, bomb-proof magazine with stone walls. The next day the volcano Mt. Pelee flattened the city and killed everyone there, except Ludger Sylbaris. His bad luck? had turned into his luck. He was released for his crime and became a celebrity.

Think about having a massive wall covered with a massive equation, how interesting?. Bernar Venet is an artist that has filled large walls with equations, much of it can be found in his book

Art and mathematics: in search of the sublime.

In particular his “S Matrix Element” Oil painting in Brazil is quite impressive.