Quick update

So, Kathryn and I went to Japan recently for a holiday...

We met with Michi and Hiroe from the MBA days... it was a great trip spent in Tokyo and Kyoto and in a quaint little Ryokan and Onsen somewhat close to Fuji san (apparently) in the Yugawara region. It was a great trip with plenty of beautiful site seeing, shopping and eating, and definitely a place I'd recommend.

That's going to have to do for this update. :)

Murray R. Smith (1942- 2009)

A few months ago, my good friend, former boss and mentor Murray R. Smith passed away from a prostate metastasized bone cancer.

Thank-you for everything Murray. You will be missed.

Quick Catchup

Well, the MBA is complete. And I was happy to accept an offer from The Nous Group, a Melbourne based management consultancy focussing on Strategy & Public Policy, Organisational Capability, Leadership and IMT. Positive influence is our watchword.

Already have some fantastic assignments, and met some great people.

Why not check them out? www.nousgroup.com.au

Regulation of Derivatives Markets

NY Times on the Proposed Regulation of Derivatives

An interesting article.

I'm totally in favour of exchange-listing derivative products. For one, it would make unwinding the things easier.

Why high-performance computing needs financial engineering

I just read this interesting article on Ars Technica:

Why high-performance computing needs financial engineering

Richard Bookstaber, the quant's quant, suggests that the CPU- and GPGPU-driven arms race among high-frequency, computer-automated trading shops should, and eventually might, come to a halt. If it does, this would not be good for teraflops vendors like Intel, NVIDIA, AMD, and IBM.

I found the article and the opinion on which it was based to be quite thought provoking. Giving it further consideration, it is quite compelling to link the two industries because while there are no shortage of applications which could benefit from high-speed computing in only a few, such as financial engineering, does the benefit of the faster speeds immediately and directly result in improvement to the bottom line (and thus justify the upgrade expenses). For example, in high-end CG design, the faster CPU/GPU saves rendering time, and therefore reduces staff and related costs, but it does not necessarily increase revenues, short of allowing more work to be done in less time. In other words, it's a more difficult proposition to sell.

In any case, I posted a suitably geeky comment to the article:

It's an interesting point--with less frequent trades the amount of high CPU power required would be less.... But I wonder, with the increasing push towards regulation, particularly of futures, options and other derivative securities, and given that credible sources, such as the FSA of Britain, are making a push toward the public listing of such securities onto centralised trading and clearing exchanges--I would personally imagine that the amount of complex real-time mathematics would be increasing in those scenarios, and perhaps increase volumes of trades in other ways.

Further, despite how (unfairly) discredited/blamed as they have been, VaR and other risk-assessment calculations will not stop being processed. If anything, they will be intensified and supplemented with other more complicated stress-tests and BASEL-II calculations. Despite the fact that these mathematical systems do not (and have never claimed to) foresee "black swans", they do speak accurately for 99% of the time. It will continue to be the responsibility of the Chief Risk Officer and his/her staff to foresee the 20+ sigma events, and for all other days, we'll use VaR. The geeks will continue bearing greeks. Finally, I would imagine that some of the most computationally souped-up desks of Investment Banks are the arbitrage divisions, which as [a previous commenter] suggests above, will forever be in competition with each other to have superior CPU speeds.

On a tangent, I'm surprised by [the author's] comment that they use Black-Scholes as a benchmark; as it's a rather computationally simple set of calculations (O(1) complexity). Could you comment on that? Is it that they do so many Black-Scholes calculations that it's really important? I ask because the Monte Carlo simulations used for more complex securities pricing(which are actually at least O(n) complexity, and more likely O(2n) or more), or some crunching of some American-style binomial trees for options (O(n) or O(n^2) or more) would appear to be more meaningful benchmarks to me....

I bet it's one of "those comments" that I'll want to go back and delete once I get a better understanding of these industries.

Do you get less wet if you run in the rain?

Gratuitous Physics ahoy, in what appears to have been a slow news week for the BBC.

By deriving the "modified simplified total wetness equation":


We come to the conclusion that running is going to make you less wet, but that you cannot run fast enough to not get wet.

Groovy. :)

Death Star Costs $15.6 Septillion, 1.4 Trillion Times the US Debt

The total: $15,602,022,489,829,821,422,840,226.94.

Click here for the article.

Great article, ends it off with Eddie Izzard--so it's a brilliant post.