Monday, November 17, 2008

Brave new market world

Barron's this weekend explains the world has changed. It means quant models need to be rethought.

What is being predicted as rare events by the models are daily occurences.


All the melodramatic talk of the lowest-ever consumer-confidence reading, the greatest increase in the money supply and the highest sustained market-volatility levels in the annals of markets is spreading numbness.

The clustering of so many once-rare "90% days" -- when 90% of stocks and trading volume move in one direction -- has muted the commentary on them. When the Dow industrials jumped 6.7% Thursday after erasing steep losses, it was their largest one-day jump since...Oct. 28. So maybe it's telling that the morning after this huge gain (and 11% intraday reversal), the market story made neither page A1 of The Wall Street Journal nor the front page of the New York Times business section.


The world has changed, the models are virgin once more. Hacker quants are going to be in demand for a long time. A quant will build a model and test its assumptions with existing data. But where no historical data exists, no validation has been made, or no model covers it. It is a new configuration.

13 comments:

Bill Miller said...

I'll offer Wall Street some cost cutting advice, shit can the quants. While they are sitting at home collecting their unemployment checks and wondering what went happened, they should read "The Black Swan" by Nassim Nicholas Taleb.

Marcf said...

He he, you pissed off huh?

Taleb a quant if there ever was one. But if you think about it the quants exist because of Taleb's swans. IF there is no swans then your models converge and you capture your context and your model prints money. You are done, you can fire your quant since he is done writing your model.

But then something like subprime mess happens (although it was exactly a black swan) the context changes and the models have got to be rewritten from scratch.

You sure you want to fire you quant then ?

Bill Miller said...

Not pissed. I have always been a quant skeptic, therefore I don't invest with them and I have neither directly made or lost any money based on what they do. "If there are no swans" says it all. If their models are right, for as long as they are right, then they print money, but their models are wrong and only appear to be right temporarily - so they will print money until they blow up - and they will blow up, and they won't know when, because there are swans, and the swans are not in the model. They are the soothsayers modern finance. They may as well be examining entrails as using their models, the performance over a long enough period of time would be very similar.

Marcf said...

Bill,

A lot of my friends from the Polytechnique Paris are in the derivatives industry. A good friend of mine is head of R&D worldwide.

They are good people. They are not evil. They write models that don't pretend to be right or wrong, they are just models.

Models, like learning networks, are trained with historical data. But retraining the models is hard and there is no data, so they have to go back to root causes as opposed to just extracting steady state signal from historical patterns of the market.

There are new patterns in the markets, they have never been seen before, their probability in the old models was infinitesimal and now they appear every other day. You don't want to blame your geek for that, au contraire! you want your geek quickly figuring out what the hell is going on. Yes, write a new model, retrain a new network, fudge some factors in software, replace the whole hardware farm for that.

Marcf said...

he he, I should add "for BNP".

Bill said...

Marc,

Good point you've made that many geeks just work on models, knowing and not trying to hide that there is much that they do not know and the resulting very high level of uncertainty in these models. If someone elects to gamble that the models are predicting market movements, it is not really the fault of such honest geeks. I am remain skeptical that these models will be sufficiently dependable predictors to be useful as investment tools in our lifetime, and possibly never, due to the possibility, if not probability, that there is a certain amount of randomness that is fundamental to our universe. It may be a noble academic pursuit by geeks to attempt to model the behavior of markets, but it is my opinion that they are tilting at windmills and their talents could be better used in more likely achievable pursuits. Therefore, I would not wish to pay them to model markets in the belief, or hope, that the models will predict the movements of the market with sufficient certainty to make money over a long period without substantial risk of a model breakdown and a blow up. The models are too unreliable to justify their employment, and will remain so even after they tune them for recent events.

Marcf said...

I guess I am more optimistic than you are about the predictive power of quant models.

As someone said the difference between a horrid investor and a great one? the bad one is right 4 out of 10, the good one is right 6 out of 10. You don't have to be right all the time. The black swan theory, that a model will never get it right 100%, doesn't invalidate the usefulness. It is an opinion however.

Even though I do not personally invest in hedge funds, i just don't like the fees, I do want to believe in the predictive power of models.

I view finance and economics closer to 'medicine' than 'mathematics'. Mathematics are a support tool, a mighty one, but not all knowing.

Juha Lindfors said...

I was thinking more like predicting weather patterns.

A great deal of math, modeling, number-crunching, calculation and thinking goes into weather predictions. There's a ton of CPU power behind it. Lots of geek code too.

But nobody thinks the predictions for next summer's weather is going to be any good at all. Whether it's going to rain tomorrow or not -- well not an exact science but still gives you a decent prediction with some probability.

When it comes to weather people already have the right expectations.

Anonymous said...

2008真情寫真aa片免費看捷克論壇微風論壇大眾論壇plus論壇080視訊聊天室情色視訊交友90739美女交友-成人聊天室色情小說做愛成人圖片區豆豆色情聊天室080豆豆聊天室 小辣妹影音交友網台中情人聊天室桃園星願聊天室高雄網友聊天室新中台灣聊天室中部網友聊天室嘉義之光聊天室基隆海岸聊天室中壢網友聊天室南台灣聊天室南部聊坊聊天室台南不夜城聊天室南部網友聊天室屏東網友聊天室台南網友聊天室屏東聊坊聊天室雲林網友聊天室大學生BBS聊天室網路學院聊天室屏東夜語聊天室孤男寡女聊天室一網情深聊天室心靈饗宴聊天室流星花園聊天室食色男女色情聊天室真愛宣言交友聊天室情人皇朝聊天室上班族成人聊天室上班族f1影音視訊聊天室哈雷視訊聊天室080影音視訊聊天室38不夜城聊天室援交聊天室080080哈啦聊天室台北已婚聊天室已婚廣場聊天室 夢幻家族聊天室摸摸扣扣同學會聊天室520情色聊天室QQ成人交友聊天室免費視訊網愛聊天室愛情公寓免費聊天室拉子性愛聊天室柔情網友聊天室哈啦影音交友網哈啦影音視訊聊天室櫻井莉亞三點全露寫真集123上班族聊天室尋夢園上班族聊天室成人聊天室上班族080上班族聊天室6k聊天室粉紅豆豆聊天室080豆豆聊天網新豆豆聊天室080聊天室免費音樂試聽流行音樂試聽免費aa片試看免費a長片線上看色情貼影片免費a長片

Anonymous said...

本土成人貼圖站大台灣情色網台灣男人幫論壇A圖網嘟嘟成人電影網火辣春夢貼圖網情色貼圖俱樂部台灣成人電影絲襪美腿樂園18美女貼圖區柔情聊天網707網愛聊天室聯盟台北69色情貼圖區38女孩情色網台灣映像館波波成人情色網站美女成人貼圖區無碼貼圖力量色妹妹性愛貼圖區日本女優貼圖網日本美少女貼圖區亞洲風暴情色貼圖網哈啦聊天室美少女自拍貼圖辣妹成人情色網台北女孩情色網辣手貼圖情色網AV無碼女優影片男女情色寫真貼圖a片天使俱樂部萍水相逢遊戲區平水相逢遊戲區免費視訊交友90739免費視訊聊天辣妹視訊 - 影音聊天網080視訊聊天室日本美女肛交美女工廠貼圖區百分百貼圖區亞洲成人電影情色網台灣本土自拍貼圖網麻辣貼圖情色網好色客成人圖片貼圖區711成人AV貼圖區台灣美女貼圖區筱萱成人論壇咪咪情色貼圖區momokoko同學會視訊kk272視訊情色文學小站成人情色貼圖區嘟嘟成人網嘟嘟情人色網 - 貼圖區免費色情a片下載台灣情色論壇成人影片分享免費視訊聊天區微風 成人 論壇kiss文學區taiwankiss文學區

Anonymous said...

福~
「朵
語‧,最一件事,就。好,你西.............................................................................................................
..................

Anonymous said...

85cc免費影城 愛情公寓正妹牆川藏第一美女 成人影片 情色交友網 美女視訊 美女視訊 視訊情人高雄網 JP成人影城 383成人影城 aa片免費a片下載 a片線上看aa片免費看 ※a片線上試看※sex520免費影片※ aa片免費看 BT成人論壇 金瓶影片交流區 自拍美女聊天室 aa片免費a片下載 SEX520免費影片 免費a片 日本美女寫真集 sex520aa免費影片 sex520aa免費影片 BT成人網 Hotsee免費視訊交友 百分百貼影片區 SEX520免費影片 免費視訊聊天室 情人視訊高雄網 星光情色討論版 正妹牆 383成人影城 線上85cc免費影城 85cc免費影城 85cc免費影城 85cc免費影城 ※免費視訊聊天室※ ※免費視訊聊天室※ 免費視訊聊天室 85cc免費影片 85cc免費影片 080苗栗人聊天室 080苗栗人聊天室 080中部人聊天室 080中部人聊天室 免費a片下載 免費a片 AA片免費看 aa片免費看 aa片免費看 aa片免費看 aa片免費看 日本av女優影片 av女優 av女優無碼影城 av女優 av女優 百分百成人圖片 百分百成人圖片 視訊情人高雄網 電話交友 影音電話交友 絕色影城 絕色影城 夜未眠成人影城 夜未眠成人影城 色咪咪影片網 色咪咪影片網 色咪咪影片網 色咪咪影片網 色咪咪影片網 免費色咪咪貼影片 免費色咪咪貼影片 色情遊戲 色情遊戲 色情遊戲 色情遊戲 影音視訊交友網

Anonymous said...

視訊交友網 080視訊聊天室 ※免費視訊聊天室※ ※免費視訊聊天室※ 視訊聊天室 成人影音視訊聊天室 ut影音視訊聊天室 ※免費視訊聊天室※ 視訊ukiss聊天室視訊ukiss聊天室 視訊交友90739 視訊交友90739 情人視訊網 168視訊美女 168視訊美女 168視訊美女 視訊美女館 視訊美女館 免費視訊美女網 小高聊天室 小高聊天室 aio交友聊天室 aio交友聊天室 交友聊天室 交友聊天室 線上a片 線上a片 線上a片 線上a片 線上a片 免費線上a片 免費線上a片 嘟嘟成人網站 成人漫畫 情色文學 嘟嘟成人網 成人貼圖區 情色文學成人小說 微風成人區 情色貼圖區 免費視訊聊天 免費成人圖片區 愛情公寓 愛情公寓聊天室 寄情築園小遊戲 免費aa片線上看 aa片免費看 情色SXE聊天室 SEX情色遊戲 色情A片 免費下載 av女優 俱樂部 情色論壇 辣妹視訊 情色貼圖網 免費色情 聊天室 情人視訊聊天室 免費a片成人影城 免費a片-aa片免費看 0204貼圖區 SEX情色 交友聊天-線上免費 女優天堂 成人交友網 成人情色貼圖區 18禁 -女優王國 080視訊美女聊天室 080視訊聊天室 視訊交友90739 免費a片 aio 視訊交友網 成人影城-免費a片※免費視訊聊天※85cc免費影片日本線上免費a片 免費色咪咪影片免費色咪咪影片aaa片免費看影片aaa片免費看成人影城情人視訊高雄網sex520免費影片080聊天室080聊天室aa的滿18歲影片免費av18禁影片免費av18禁影片免費av18禁影片aa的滿18歲影片聊天室ut愛情公寓尋夢園聊天室