Maison Fleury

I am reading more and more commentary around the value/lack thereof of Mathematics applied to Finance. You can find it in the comments on this very blog. The argument usually goes that the field has gone overboard on complexity, witness the synthetic CDO's that triggered the contagion of the subprime crisis. Other answer that mathematics is just about models and models are worth what they are worth no more no less. Basically it seems the debate is about ego between those that idolize models and those that intuitively distrust them. Biology reminds me of Economics a lot. Except over there the debate is not that polarized. It is clear that mathematics is a support tool in the complex field of Biology. People use it for what it is good at and don't take it to the logical extremes. The field is still more medicine field practitioners than differential geometry theorists. And that is probably a good thing. It is however providing new insights in the emerging field of system ...

Good, anonymous, article entitled " all fall down " (subscriber only) in the FT. The gist is simple enough: the investment theory of diversification was based on the fact that asset classes performances are uncorrelated and by spreading your bets, you will hedge your risk. Since the assets are uncorrelated, you never get stuck with all down. So when ALL asset classes go down in value, together, what does that tell you? The article draws 2 conclusions 1/ one the monetary one, on a decreasing volume of money prices will go down as indexed on this money 'gauge'. Remember if inflation is always and everywhere a monetary phenomenon, so is deflation. When all prices go down together isn't it a sign of indiscriminate monetary impact? All boats go down in a low tide. 2/ investors are correlated, through psychology and leverage, in their selling behavior and if they are all diversified then all asset classes get hit which defeats the purposes of diversification in the...

I am convinced that this crisis we are in is mostly due to demographics of the baby boomer generation. Blame it on them. The boomers are starting to retire, their production has peaked, their cash inflow has peaked, their leverage has peaked, their consumption has peaked. They will start selling assets to support their lifestyle in retirement. The convulsions right now are the beginning of this transition. When all is said and all is done, the Japanese crisis was one of aging demographics as well. I got 4 kids on my own, doing my part. Demographics and monetary levels drive the current financial crisis.

Amid the worst downturn in banking since ever, quants are still finding ways into the industry according to this report . The survey of quant farms, who globally produce 2000 man a year, finds that quants are in demand from hedge-funds to banks in order to price counter party risk. "Classes are placed at 60% by this time of the year" says one director of department "versus 80% in previous years." Basically those that were blamed a year ago for setting off the August 2007 panic are now asked to figure out what the hell is going on. As a side note, I am reading "physics of finance", a manifold based modeling of finance that quickly starts drawing on the tools developed by math for theoretical physics, both gravity and quantum theories. For example it models arbitrage as space curvature. Space curvature is captured in general relativity. Money is a force?

House-calls One of my most pleasant surprises here in Madrid is the discovery of a pediatrician who not only gives you his cell phone number (that he picks up), but who will make house-calls. With four children, one of whom is in his first year of preschool, can I say what a life-saver this is. Dr. J is probably way over-specialized to be dealing with my children's flus and sniffles (he's also a neonatologist), however, he never makes me feel bad when I call him, even one time when the school secretary sent my daughter home saying she had conjunctivitis and it turned out to be a pimple on her eyelid. I am under no illusions that tending to my progeny's medical needs has much to do with what he studied in medical school, however since the morning portion of his work is related to social-security and making the rounds of day-cares, I feel like a relative prize--something along the lines of Mrs. Pumphrey with her pampered lap dog Tricky Woo from the BBC series " All Cre...

Some of you may have become acquainted with our neighbors in my previous blog entry . Since that time, they have not been idle. In addition to a hostile visit from the forty-something single woman who lives with her mother in the apartment below us, the building association (representing the owners of the exactly 12 units in this place) sent us a certified nastygram citing "numerous complaints" about the noisiness of our children and telling us that noise is forbidden in the building before 9am. Almost none of these people, in the almost four months that we have lived here, has ever bothered to introduce themselves to us, but they apparently organize enough amongst themselves to dispatch certified communications via the post office. None of this bothers my French husband in the least. He, himself, has vivid childhood memories of ongoing noise complaints (regarding his brother and himself) from the curmudgeonly old lady who lived in the apartment below his family. One day, in ...

Don Quixote is at it. Merry Christmas.