Via Alea, a new entry into the best title ever competition: “Option Model Calibration Using a Bacterial Foraging Optimization Algorithm” by J. Dang, A. Brabazon, M. O’Neill, and D. Edelman. That right, using an algorithm inspired by trying to mimic E. coli foraging, one hopes to calibrate a volatility option pricing model. No word yet, however, on whether bacteria will be able to spot CDOs with a large exposure to subprime mortgage bonds.
Happenings in the Quantum World: February 1,2008
Colorado State scores Keck money, D-Wave scores venture money, QICIQ 2008, Reversible computation tutorial, and a review of “Quantum Hoops.”
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Markets Predicting Elections
Can markets predict elections? Alea summarizes last night’s primary results: Ooops! From my perspective, I find the ideas of markets predicting future events fascinating, if for no other reason than my original motivation for studying physics was tied up deeply in questions about predicting the future.
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Off the Queue and Into the Cranium
Books off the queue and lodge securely somewhere behind my eyes: “A Mathematician’s Apology” by G.H. Hardy and “A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation” by Richard Bookstaber
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Off the Queue and Into the Brain
Books recently removed from the queue. “Mathematicians in Love” by Rudy Rucker, “An Engine, Not a Camera: How Financial Models Shape Markets” by Donald Mackenzie, “Financial Calculus : An Introduction to Derivative Pricing” by Martin Baxter and Andrew Rennie. “109 East Palace: Robert Oppenheimer and the Secret City of Los Alamos” by Jennet Conant.
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The Purpose of This Blog
Oftentimes I’ve been asked what the purpose of this blog is. As if everything in life must have a purpose:pfft, I say! But because an answer is required, what I usually answer is that the purpose of my blog is to slow down my fellow researchers. I mean sheesh, the people in quantum computing are the modern polyglots of science, speaking physics, computer science, and mathematics with ease. And they’re universally a brainy crowd. So what better purpose can this blog serve that to slow these readers down by offering them great opportunities to surf the intertubes and procrastinate.
Along those lines…
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Financial Markets as Test of Fundamental Physics
From an article in the New York Times today:
More recently, executives have blamed very unusual events — known to experts as 25-standard deviation moves, things expected only every 100,000 years — for the disruptions that computers could not predict.
Um, according to my calculation, a 25 standard deviation move on a normal distribution has a chance of occuring which is about [tex]$6 times 10^{-138}$[/tex]. This means then that if the above statement is correct (100,000 years equals one 25 standard deviation move), then financial transactions occur at a rate of one transaction every [tex]$10^{-117}$[/tex] seconds. This is, you know, only [tex]$10^{-73}$[/tex] times shorter than the Planck time relevant to a quantum theory of gravity.
Which is great if your a physicist! Forget about building the Large Hadron Collider, just use the financial markets to test your theory of quantum gravity! Maybe the recent credit crunch is evidence for the Higgs boson or a selectron? I mean, seriously, we already have huge numbers of physicists working in the financial sector. Maybe they were on to something we didn’t notice and they’re really doing fundamental physics using this incredible financial transaction speed (and even making money while they’re poor thesis advisors slave away in tenured at a state institute land 🙂 )
More seriously, I wonder if one could predict the future behavior of a financial instrument by examining the incidences of mathematical jargon in the instruments literature and the percentage of times the statement actually makes sense (would you invest if you found a clarifier about 25 standard deviation moves in a hedge funds plan?)