long finance big data needs big theories - z/yen finance - rhul - 27 01 14 v1 0.pdf · © z/yen...
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2013
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“Zest for Enlightenment”
Royal Holloway, University of London
Long Finance
Big Data Needs Big Theories
Professor Michael Mainelli
www.zyen.com
Egham, Surrey
27 January 2014
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2013
♦ Special – City of London’s leading commercial think-tank
♦ Services – projects, coaching/training, expertise on
demand, research, strategy, modern systems
♦ Sectors – technology, finance, voluntary, professional
services, outsourcing
Independent Publisher Book Awards Finance, Investment &
Economics Gold Prize 2012 for The Price of Fish
British Computer Society IT Director of the Year 2004 for
PropheZy and VizZy
DTI Smart Award 2003 for PropheZy
Sunday Times Book of the Week, Clean Business Cuisine
£1.9M Foresight Challenge Award for Financial £aboratory
visualising financial risk 1997
Z/Yen
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♦ Long Finance predicting bubbles
(current)
♦ LIBOR litigation (current)
♦ Prediction markets (1998-present) –
www.extzy.com
♦ Market Intelligence – MoD, e.g.
Vision 2020, and ongoing
♦ Avatars for Big Data (2010-2012)
♦ PropheZy and VizZy – Automation
of Compliance monitoring (2005-
2008)
♦ Financial £aboratory Club
visualising risk (1997-1998)
Z/Yen in Finance
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Surfeit of Wicked Problems
[source: Dr Tim Morgan, Dangerous Exponentials, Tullett Prebon (June 2010)]
“The biggest shortcoming of the human race is our inability to
understand the exponential function.” Professor Al Bartlett, University of Colorado
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2013
2,000,000 Years of Commerce and We
Still Don’t Know The Price Of Fish
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2013
♦ Not a physical modelling problem, so the
speed of the environment is the speed of
the substrate
♦ Regulation is monitoring the system’s
performance, not part of the system – tools
such as ‘optimal leverage’ worth
considering
♦ Large degrees of regulatory freedom
needed – Ashby’s Law of Requisite Variety
Big Data Is Too Small
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Judge Voltaire
« Il est encore plus facile de juger de l'esprit d'un
homme par ses questions que par ses réponses. »
“It is easier to judge the mind of a man by his
questions rather than his answers”
Pierre-Marc-Gaston, duc de Lévis (1764-1830),
Maximes et réflexions sur différents sujets de morale et de politique (Paris, 1808):
Maxim xvii.
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2013
London
Accord
Financial
Centre
Futures
Meta-
Commerce
Eternal
Coin
About
‘When would we know our
financial system is
working?’
Objectives:
Expand Frontiers
Change Systems
Deliver Services
Build Communities
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Long Finance – London Accord
♦ Founded 2005
♦ Long Finance’s ESG
‘sustainable finance’
programme
♦ Over 60 contributors of over
400 ESG reports
♦ Tomorrow’s Cities 2014
initiative
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Financial Centre Futures
15
Communities
Washington Consensus
Virtual rules Geography matters
Long Hand Many Hands
Second Hand Visible Hand
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2013
Self-referential system
upon which all our
analysis is based:
♦ What does GDP mean?
♦ Are competing
currencies good or bad?
♦ Should money be a long
term store of value?
The Eternal Coin
[Source: http://illusionsetc.blogspot.com/2005/08/moving-mobius-strip.html]
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What’s All This Got To Do With The
Price of Tea In China?
[source: http://www.xabusiness.com/chinese-paintings-picture/chinese-brush-paintings/2/br-0694b.jpg]
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♦ Irreversible Time
♦ Confidence Accounting
♦ Unburnable Carbon
♦ Policy Performance Bonds
♦ Open Data
♦ Standards Markets
♦ Asymmetric Gain & Loss Recognition
♦ Pension Internal Growth Rates and
Indemnity Assurance
♦ Insured Utility Banking
♦ Taxation Reform
♦ Uses & Abuses Of Discount Rates
♦ Cyber Reinsurance
♦ IP Options Markets, R&D Lotteries
♦ New Monetary Systems – UK WIR...
Mechanisms or Faiths?
“Get a detailed grip on the big picture.”
Chao Kli Ning
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Irreversible Time - 300 Year Old Hole
[Source: Towers Watson:
http://www.towerswatson.com/en/Insights/IC-Types/Ad-hoc-Point-of-View/2012/time-is-irreversible-or-why-you-should-not-listen-to-financial-economics
& Peters, Ole (2011), “The Time Resolution of the St. Petersburg Paradox,” Philosophical Transactions of the Royal Society (2011) 369, 4913-4931]
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0
20
40
60
80
100
120
0 5 10 15 20 25 30 35 40 45
Val
ue
Time (years)
Mark to Market and Discount Rate Valuations
Contribution Pension IGR Asset-MtM Liability (Gilt)
Pensions – Internal Growth Rate
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2013
Is Measurement Everything?
“Companies should seek to disengage from the
process of managing short term earnings expectations”
‘Long’ is not just another four letter adjective for ‘good’
Most theorists believe strongly that the first step towards
governance, control and management, whether scientific
or commercial or political, is measurement.
We repeatedly find that not measuring people leads to
low standards, slack practices and corruption
If we adopt ‘long’ does that mean we need to drop
‘measurement’?
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2013
♦ Need to know “how to talk to the market” –
Dr Doolittle, e.g. oil price moves post 9/11 or
aluminium and Murabaha today
♦ Need ways of eliciting unstructured
information – narrative analysis
♦ Need ways of storing unstructured
information – tagging
“querying and structuring risk rich responses”
Regulation & Radical Uncertainty
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“If you can write the specification,
you haven’t understood the problem.”
♦ Delicious, Pinboard,
Diigo
♦ Bookie
♦ DrupMarks, GetBoo,
Sabros.us,
SemanticScuttle,
Shaarli
♦ Unexus (launching)
♦ Fluid Info, Fusion-
experience
♦ tagclouds
♦ taxonomies and
taxonomy markets
♦ prediction markets
♦ text analysis
software
♦ BT Saturn, Partiview,
Quid, Palantir
♦ heatmaps
♦ cartograms
♦ network labelling
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Defense (sic) Against the Dark Arts
SOLUTION
PROBLEM
You know
You don’t know
Known
Knowns
Unknown
Unknowns
Unknown
Knowns
Known
Unknowns
You know You don’t know
How to change behaviour?
Who’s driving the market?
Capital base returns
Velocity & quantity of money
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2013
♦ New technologies
♦ New models
♦ New measures
♦ … then Big Data
Science & Long Finance
“Get a big picture grip on the details.”
Chao Kli Ning