Marketcetera

http://venturebeatprofiles.com/company/profile/marketcetera

"Marketcetera Platform allows you to build automated trading systems for equities, equity options and currencies, to maximize the effectiveness of your traders and developers. Trade opportunities disappear in milliseconds. Equity options data feeds now reach 1 million messages per second. "

Homepage: http://www.marketcetera.com/site/

Father of Financial Engineering Discusses Crisis

http://www.technologyreview.com/blog/post.aspx?bid=354&bpid=23367

Merton speaks!

"The central point of the first part of the talk -- the embedded put option in a plain vanilla loan, and associated nonlinearities -- is nice but I don't think it is as essential to the current crisis as he suggests. (It's obviously in his interests to downplay the complexity of new financial instruments relative to traditional ones. The difference, of course, is that we've had much more time to get used to the traditional ones and build the proper safeguards and regulatory systems.) Merton is refreshingly modest about his understanding of the complex causes of the crisis. At one point he notes that the post mortem investigation into the crisis is unlikely to produce a Feynman moment, in which someone holds up an O-ring that caused the disaster!"

Supercomputer Bankers

Speeding Up Financial Analysis

http://www.technologyreview.com/printer_friendly_article.aspx?id=22463&channel=computing§ion=

"Now IBM has shown that stream computing can be used to analyze market data faster than ever before. The result is a machine that helps automated trading systems determine the price of securities using financial events that have just occurred. To build the system, the computing company partnered with TD Securities, an investment-banking firm, to tweak IBM software called InfoSphere Streams for financial data. The firm ran the software on one of the latest IBM supercomputers, known as Blue Gene/P."

Video on Youtube: http://www.youtube.com/watch?v=mri7cha8ziw

Financial Engineers as Bridge Architects

Economics is a new science. Financial engineering is an even newer science.

Humankind's earliest bridges were flimsy. Over time, they got better and better, but sometimes bridges collapse.

If a wood bridge collapses, does it mean that the science of bridge building is too dangerous? Does it mean that we should abandon bridges because sometimes bridges collapse? No, because collapses are relatively rare and before the bridge collapses, it serves a lot of good.

Now let us say a "fat tail" event occurs. Architects for a bridge in the Bay Area put a lot of effort into ensuring that the bridge can withstand an earthquake that is 9.0 on the Richter Scale. A 10.0 earth quake has never been recorded and it would cost $10B to make the bridge that resilient. Should the Mayor of San Francisco raise taxes, cut teachers' salaries, etc. in order to make the bridge 10.0 safe?

Then imagine that one day a 10.0 earth quake hits. A 10.0 quake has never been recorded in history - are the architects to blame? Is the mayor to blame?

Or is maybe no one to blame. Science is not perfect, but continuously improves. The financial sciences are in their infancy and need to be nurtured and incubated rather than left exposed like weak Spartan babies.


[Note 20-April-09: I have found another article ("Don't Blame the Quants" - Forbes)that uses this analogy; it was written in Oct 08 by Steven Shreve, the Orion Hoch professor of mathematical sciences at Carnegie Mellon University:

"It is easy under these circumstances to point an accusing finger at the "quants" on Wall Street, that cadre of mathematics and physics Ph.D.s who crunch numbers in esoteric models. Without the quants, the complicated mortgage-backed securities that fueled the housing bubble and led to the freezing of credit might not have been created. The models used by the quants determine the prices of those securities and steer the traders who make markets in them. Without this guidance, the banks might not have touched them in the first place. To prevent a recurrence of financial crises, some call for a return to a simpler time, before derivative securities and the quants who analyze them--a time when investors bought stocks and bonds and little else.

Such complaints miss the point. When a bridge collapses, no one demands the abolition of civil engineering. One first determines if faulty engineering or shoddy construction caused the collapse. If engineering is to blame, the solution is better--not less--engineering. Furthermore, it would be preposterous to replace the bridge with a slower, less efficient ferry rather than to rebuild the bridge and overcome the obstacle."


http://www.forbes.com/2008/10/07/securities-quants-models-oped-cx_ss_1008shreve.html]

Nassim Taleb as Populist, as Reactionary

http://www.ft.com/cms/s/0/5d5aa24e-23a4-11de-996a-00144feabdc0.html

Ten principles for a Black Swan-proof world
By Nassim Nicholas Taleb

Highlights:

<> "Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties."

Private equity (financed with leverage) helps small businesses grow and allows exits for entrepreneur (making entrepreneurship more attractive and encouraging innovation).

<> "The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean."

Question: OK, the experts got it wrong, but having amateurs solve the problem hardly seems to be a sensible solution.

Also, note that Mr. Taleb is part of the same establishment. He does not hide this (his credentials are clearly stated at the bottom of the article "The writer is a veteran trader, a distinguished professor at New York University’s Polytechnic Institute and the author of The Black Swan: The Impact of the Highly Improbable") but he does not mention the legion of PhDs in mathematical finance that he "unleashed." Also, "the veteran trader" managed a hedge fund.

"Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control)."

Average people need to invest in financial markets in order to prevent inflation from clawing away at their retirement savings. Also, most people are not business owners, but agents of anothers' business. A middle manager of a paper company in Scranton, PA hardly has control over his destiny, and I'm not sure what his retirement strategy would look like without financial markets.