Monthly Archives: December 2010
The tightrope of the random walk
We’re really interested in markets, but we’ll start with a series of coin tosses. If the coin lands heads, then we go up one; if it lands tails, we go down one. Figure 1: A coin toss path.Figure 1 is the result of one thousand coin flips. It is a random walk. The R command … Continue reading
Making science happen
One of the things I’d most like to happen in finance is for a science mindset to take hold. Perhaps this would happen more if society as a whole were more scientifically oriented. Perhaps society would be more scientifically oriented if schools taught science better. Science in schools The possibility of learning science in school … Continue reading
Clever versus simple risk management
David Rowe has a short piece called Regulators Double Down. He argues that risk regulations should be simple at the expense of consistency, rather than complex at the expense of knowing the consequences. I wish to remain a cool remove away from discussions of regulation. However, I very much agree with David’s argument. I see … Continue reading
Feeding a greedy algorithm
The idea of a greedy algorithm (for optimization) is that you do as best you can locally and you don’t worry about the big picture. For some problems a greedy algorithm is guaranteed to get you to the global optimum. In other cases, no. An intuitive example Suppose you are walking and you want to … Continue reading
Some quibbles about “The R Book” by Michael Crawley
A friend recently bought The R Book and I said I would tell him of problems that I’ve noticed with it. You can eavesdrop. Page 4 The word “library” is used instead of “package”. This (common) error substantially raises the blood pressure of some people — probably to an unwarranted extent. An R package is … Continue reading
Freeloading turnstile jumpers
What would happen if I jumped the turnstile at my local tube station? Well okay, duck under in my case. Best case: people glare at me like I’m scum. Worst case: I’m thrown back out and have to pay a fine (and there are even more glares). It would be perhaps three to five dollars … Continue reading
Bear hunting
When were there bear and bull markets in US stocks since 1950? Smoothing While we’d really like to estimate the expected return at each point in time, finding bear markets is ambitious enough. The plan starts by smoothing the daily returns through time, as in Figure 1. Figure 1: Smoothed returns with a 4 year … Continue reading
