Re: [Jchat] Introducing J to Financial & Actuarial Students

[Donna Y]

I hope everyone can forgive my arch commentary while I struggled to figure out 
why EMH is wrong—perhaps I was 
> 
> "not even wrong ”? 

> In financial markets, analysts observe something called volatility clustering 
> in which periods of low volatility are followed by periods of high volatility 
> and vice versa. For example, volatility for the S 500 was unusually low for 
> an extended period during the bull market from 2003 to 2007, before spiking 
> to record levels during the market correction of 2008. ARCH models are able 
> to correct for the statistical problems that arise from this type of pattern 
> in the data. As a result, they have become mainstays in modeling financial 
> markets that exhibit volatility. The ARCH concept was developed by economist 
> Robert F. Engle, for which he won the 2003 Nobel Memorial Prize in Economic 
> Sciences.

Donna Y
dy...@sympatico.ca


> On Sep 8, 2019, at 8:28 PM, Donna Y  wrote:
> 
> BIG DATA
> 
> Raul said:
>>> 
>> 
>>> That said, for practical reasons (even ignoring regulations) it's not
>> 
>>> possible to extract all meaning from historical data.
> 
> The meaning of life?
> 
 “Well, it's nothing very special. Try and be nice to people, avoid eating 
 fat, read  a good book every 
 now and then, get some walking in, and try and live together in peace and 
 harmony with people of all creeds and nations 
 .”
>> 
>>> This is
>> 
>>> especially true in high monetary velocity contexts. There isn't enough
>> 
>>> time to perform more than superficial calculations.
> 
> HFT is falling off because once they overtook most of the market there wasn’t 
> money to be made through high speed trades.
> 
> Fama says prices reflect all information (variously: available, relevant, WF 
> historic prices or prices and volume, SSF history + news, SF history, news 
> and private information. 
> 
> Saying that in an efficient market prices “fully reflect” available 
> information is so vague that can’t be empirically tested.
> 
> There is a comparative advantage conferred by differences in information held 
> by competing investors. Information that is universally available cannot 
> provide the basis for profitable trading rules.
> 
>> Fidelity Investments has quietly built up a team of nearly 140 data geeks.
> 
>> "Between the dawn of civilization and 2003, we only created five exabytes; 
>> now we're creating that amount every two days. By 2020, that figure is 
>> predicted to sit at 53 zettabytes (53 trillion gigabytes) -- an increase of 
>> 50 times. Google’s CEO, Eric Schmidt
> 
> Of course 78% of all statistics are made up—and you know 78% is made up 
> because it should follow the 80/20 rule
> 
> 
>> It would be ideal if we could have an uncontrolled flow of information. - 
>> Poindexter, former Director of DARPA Information Awareness Office
> 
> The key is what information is actually relevant to assists decision 
> makers—how much value can be derived from the information, how much cost is 
> there to finding the information where it lives and how much does it cost to 
> use it—do we even need it?
>> ...in 1946 at a conference held at… CalTech... A complex object, he 
>> conjectured, is such that the simplest model that can be given is itself. 
>> The information it contains is incompressible.
>> 
>> It is interesting that von Neumann resorted to an example borrowed from 
>> economic theory to illustrate his point. The text von Neumann chose is 
>> Vilfredo Pareto’s Manual of Political Economy (1906). In it, Pareto explains 
>> that the model of general economic equilibrium, developed with Leon Walras, 
>> is a model that formalises the mechanism of the formation of price in a 
>> competitive market: Not in the least to arrive at a numerical computation of 
>> prices….  ...if all these equations could really be known, the only humanly 
>> possible way to solve them would be to observe the practical solution 
>> brought about by the market.
>> 
> 
> 

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Re: [Jchat] Introducing J to Financial & Actuarial Students

[Donna Y]

BIG DATA

Raul said:
>> 
> 
>> That said, for practical reasons (even ignoring regulations) it's not
> 
>> possible to extract all meaning from historical data.

The meaning of life?

>>> “Well, it's nothing very special. Try and be nice to people, avoid eating 
>>> fat, read  a good book every 
>>> now and then, get some walking in, and try and live together in peace and 
>>> harmony with people of all creeds and nations 
>>> .”
> 
>> This is
> 
>> especially true in high monetary velocity contexts. There isn't enough
> 
>> time to perform more than superficial calculations.

HFT is falling off because once they overtook most of the market there wasn’t 
money to be made through high speed trades.

Fama says prices reflect all information (variously: available, relevant, WF 
historic prices or prices and volume, SSF history + news, SF history, news and 
private information. 

Saying that in an efficient market prices “fully reflect” available information 
is so vague that can’t be empirically tested.

There is a comparative advantage conferred by differences in information held 
by competing investors. Information that is universally available cannot 
provide the basis for profitable trading rules.

> Fidelity Investments has quietly built up a team of nearly 140 data geeks.

> "Between the dawn of civilization and 2003, we only created five exabytes; 
> now we're creating that amount every two days. By 2020, that figure is 
> predicted to sit at 53 zettabytes (53 trillion gigabytes) -- an increase of 
> 50 times. Google’s CEO, Eric Schmidt

Of course 78% of all statistics are made up—and you know 78% is made up because 
it should follow the 80/20 rule


> It would be ideal if we could have an uncontrolled flow of information. - 
> Poindexter, former Director of DARPA Information Awareness Office

The key is what information is actually relevant to assists decision makers—how 
much value can be derived from the information, how much cost is there to 
finding the information where it lives and how much does it cost to use it—do 
we even need it?
> ...in 1946 at a conference held at… CalTech... A complex object, he 
> conjectured, is such that the simplest model that can be given is itself. The 
> information it contains is incompressible.
> 
> It is interesting that von Neumann resorted to an example borrowed from 
> economic theory to illustrate his point. The text von Neumann chose is 
> Vilfredo Pareto’s Manual of Political Economy (1906). In it, Pareto explains 
> that the model of general economic equilibrium, developed with Leon Walras, 
> is a model that formalises the mechanism of the formation of price in a 
> competitive market: Not in the least to arrive at a numerical computation of 
> prices….  ...if all these equations could really be known, the only humanly 
> possible way to solve them would be to observe the practical solution brought 
> about by the market.
> 


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Re: [Jchat] Introducing J to Financial & Actuarial Students

[Jose Mario Quintana]

> Unless you really do want a way to talk about inconsistencies—then you
might try Paraconsistent Logic. The idea of paraconsistency is that
coherence is possible even without consistency. Put another way, a
paraconsistent logician can say that a theory is inconsistent without
meaning that the theory is incoherent, or absurd. (perhaps expressly
designed for those that are pro-life and pro capital punishment)

( Or for those that are contra-life and contra capital punishment?  Or for
attendees arriving in private jets and yachts to the "super-secret" Google
Camp conference on climate (do not google Google Camp)?  ;)



On Fri, Sep 6, 2019 at 9:54 AM Donna Y  wrote:
>
> The obscure and tedious way of mathematical language was designed to be
unambiguous.
>
> > It's difficult to talk about mathematical statements which are
inconsistent, in a consistent fashion.
>
>
> That’s because whenever a statement is inconsistent in mathematics, it
gets tossed. A contradiction is a sentence together with its negation, and
a theory is inconsistent if it includes a contradiction. Consider also the
logical principle ex contradictione quodlibet (ECQ) (from a contradiction
every proposition may be deduced--also recently called explosion).
>
> Unless you really do want a way to talk about inconsistencies—then you
might try Paraconsistent Logic. The idea of paraconsistency is that
coherence is possible even without consistency. Put another way, a
paraconsistent logician can say that a theory is inconsistent without
meaning that the theory is incoherent, or absurd. (perhaps expressly
designed for those that are pro-life and pro capital punishment)
>
> Lets break down the statement “if we could solve problems whose
complexity grows exponentially, then EMH would be true.”
>
> If P then Q
>
> P:
>
> > In 1965, Jack Edmonds [13] gave an efficient algorithm to solve this
matching problem and suggested a formal definition of “efficient
computation” (runs in time a fixed poly- nomial of the input size). The
class of problems with efficient solutions would later become known as P
for “Polynomial Time”.
> >
>
> Computational complexity describes the time or space it takes to run an
algorithm.
>
> > ...the known algorithms for many basic problems within P, including
Frechet distance, edit distance, string matching, k-dominating set,
orthogonal vectors, stable marriage for low dimensional ordering functions,
and many others, are essentially optimal.
> >
>
>
> We were thinking about distinguishing very hard problems, such as
NP-complete problems, from relatively easy problems, such as those in P.
> Anyway the equalities of complexity classes translate upwards. For
example, if P=NP, then EXP=NEXP.
>
> >> Since we can't
>
>
> But maybe we can. A computer algorithm might use brute force to go
through all available options. Humans automatically search for a solution
that intuitively feels right.
>
> Several NP-complete problems have exponential algorithms.
>
> Peter Shor’s algorithm finds the prime factors of an integer P.
(effectively breaking RSA.) Previously the runtime was exponential—given
call to Quantum computer—it would be polynomial.
>
> Shor's Algorithm in Quantum Computing - Topcoder
> > https://www.topcoder.com/blog/shors-algorithm-in-quantum-computing/ <
https://www.topcoder.com/blog/shors-algorithm-in-quantum-computing/>
>
> But what we need is an algorithm for an NP-complete problem that runs in
polynomial time.
>
> We do not have that yet and it appears beyond the currently known
techniques.
>
> Current approaches to the P vs NP problem are disguised forms of problems
in cryptanalysis. In order to prove a function f is not in a complexity
class C, exhibit some combinatorial property of f that provably prevents it
from being in the class C.
>
>
> So let’s say in future we did have a solution.
>
> If P then Q
>
> P
> then Q
>
> Except on what basis did we establish P then Q ?
>
> Nowhere.
>
> P is independent of Q.
>
> P(A|B)=P(A)--the occurrence of B has no effect on the likelihood of A.
Whether or not the event A has occurred is independent of the event B.
>
> So evaluate EMH as independent.
>
> The newer definition of efficient ﰜfinancial markets is that such
markets do not allow investors to earn above-average returns without
accepting above-average risks.
>
> Whatever patterns or irrationalities in the pricing of individual stocks
that have been discovered in a search of historical experience are unlikely
to persist and will not provide investors with a method to obtain
extraordinary returns.
>
> Ah—risk adjusted.
> Ah—all patterns disappear and can’t be exploited.
>
> If that is the case—EMH is true because it is a tautology.
>
> > tautology | tɔːˈtɒlədʒi |
> > noun (plural tautologies) [mass noun]
> > the saying of the same thing twice over in different words, generally
considered to be a fault of style (e.g. they arrived one after the other in
succession).
> > • [count noun] a phrase or expression in which the same 

Re: [Jchat] Introducing J to Financial & Actuarial Students

[Jose Mario Quintana]

> > Try again.
>
> How about we just skip this part and get to the part where you say
> what you were thinking of?

Good idea, they are, I am afraid, only la-la regulations against OCO
orders.

Yet, just for the sake of the argument, let us imagine that there were
actual regulations against OCO orders.  I am no fan of regulations;
however, the resolution of a long-standing mathematical problem and its
associated $1M prize held immobilized by red tape?  That would be
unbelievably outrageous and disappointing!

On Thu, Sep 5, 2019 at 7:26 PM Raul Miller  wrote:
>
> On Thu, Sep 5, 2019 at 6:24 PM Jose Mario Quintana
>  wrote:
> > No, that rules against a dealer canceling a customer's *executed* order
(except
> > under certain circumstances); nowhere there is anything prohibiting
> > "OCO" (contingent)
> > orders.
> >
> > Try again.
>
> How about we just skip this part and get to the part where you say
> what you were thinking of?
>
> > After nearly a decade since the initial publication...  Nada (except in
> > Lala Land).
>
> Lala Land is a fairly succinct description of the mathematical basis
> for the various EMH hypotheses.
>
> That said, for a variety of reasons, it also serves as a rough
> heuristic which can be useful in understanding a variety of decisions
> over the years.
>
> Thanks,
>
> --
> Raul
> --
> For information about J forums see http://www.jsoftware.com/forums.htm
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Re: [Jchat] Introducing J to Financial & Actuarial Students

[Jose Mario Quintana]

Hi Bob,

Many thanks for your feedback.  Raul confirmed that, alas, there is no
related J code.

P.S.  I hope newbies enjoy your videos as much as I do; ironically for
someone that likes to read and write tacit code, I really learn by looking
at examples (and I would be totally lost without an interpreter).
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