Introducing the BiX Exchange @ The DemoDay Conference in Shanghai Sept 22, 2016

Check out Our introductory video

at the International Blockchain Week in Shanghai

in slow

& 

fast

 motion

Which one do you like best?

And the presentation: https://youtu.be/K9I_NkAXZBk

In the news:

http://k.sina.cn/article_2118746300_7e4980bc020005qtq.html?vt=4

http://www.missfq.com/blockchain/blockchain-week-2016-bix-exchange-ceo-philibert-kongtcheu/

In Memoriam - Alexandre Grothendieck

This linked article is written to honor his memory. May he rest in peace.
He was truly, the greatest mathematician of the 20th century.

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A talk at Institut de Hautes Etudes Scientifiques providing an overview of the mathematics of Grothendieck

One of the rare instances of recorded voice of Grothendieck speaking on the meaning and value of scientific research in the context of rejecting research for the development of nuclear weapons:

Recent testimony from a variety of Grothendieck contemporaries (Courtesy Tony Iarrobino)/

Articles in AMS Notices :

1.   http://www.ams.org/journals/notices/201603/rnoti-p242.pdf 

2. http://www.ams.org/publications/journals/notices/201604/rnoti-p401.pdf

Article in Nature
3.https://www.nature.com/nature/journal/v517/n7534/full/517272a.html

Reliving the Life of Louis Bachelier

My thesis "Reliving the Life of Louis Bachelier" which introduces the screenplay: "I, Bachelier (Invisible Man)" is now available as a book!

This book is a verbatim reproduction of the ALM Thesis in literature and creative writing that I have just completed at the extension School at Harvard University. It is a screenplay that brings to life, in dramatic installments, the key events in the life of the Father of Modern Mathematical Finance, Louis Bachelier ( 1870-1946). It is a spellbinding double odyssey of the trials and triumphs of gritty characters that pioneer industries creating intellectual revolutions, against the scorn of titled scientific establishments, against tragedy, at tremendous personal sacrifice. Through multifaceted narratives and circumstances, it emerges as a profound,  scientific  and artistic, human exploration of the human propensity for prejudice.
http://amzn.to/1S6Byqr
It lets sheds light on the struggles Bachelier had to overcome, as viewed in our time by a young black mathematician of African origin named K., starting in grad school in Paris in the mid-90s, and then on to Wall Street, as a proponent of a new theory of decision making based on a proto-probabilistic concept called BICs (Basis Instruments Contracts) that he has invented.

It spans Bachelier’s life from the death of his parents to his famous thesis in 1900, to the dramas of the Dreyfus affair in France, WW I, up to the death of his ephemeral spouse, and the climactic denial of tenure to him in 1926. The narrative unfolds as K. himself experience similar struggles and prejudices in modern times which lead him from Wall Street to inner city life in Newark, NJ, and then to Beijing China, and back to New York. The intertwined narratives unfold in at least four languages – English, French, Mandarin Chinese, Ghomala – serving as a clinical and scientific examination of the various dimensions of prejudice, language, deriving analytical insights that bind persuasion, risk, prejudice, rewards and punishments in the decision making process. It also features two heart wrenching love stories that grip hearts and reveal characters of great humanity. This is a universal story of the travails of the misunderstood and unappreciated underdog, who nonetheless keeps on soldiering to usher in a better world.

High Frequency Traders and Liquidity

See: Speedy New Traders Make Waves Far From Wall St.


I was reading this article in the times and it just illustrated the fallacy of the argument that high frequency traders provide indispensable liquidity in the markets. Like all other normal or continuous trading assumptions about markets we question here this is one more. These assumptions work in normal times, but when they are most needed, they don't. And it makes dynamic or continuous time derivatives hedging potentially disastrous.

And this is where BICs, with there pre-determined contractual agreements provide economically valuable edge.

BEWARE WHAT YOU WISH FOR: Goldman Sachs, Fabrice Tourre, Derivatives Clearing

As I read the story of the SEC case against Goldman Sachs and one of its employees, I could not help but say to myself, BEWARE WHAT YOU WISH FOR, and this for two reasons:

1)The financial industry has been lobbying very hard against the requirement to settle all derivatives trades through a clearing house, essentially to protect the money making business of structuring customized deals for investors and various hedge funds and other market participants. What Goldman finds itself in the hot seat for is essentially for having brokered synthetic trades, the abacus deals between investors and a hedge fund that allowed the hedge fund to be short the real estate market on a large scale. If all such trades had been cleared through a clearinghouse, such an issue might not have arisen. Goldman seems to have made $15M on the deal and may have done hundred such deals, but now the stock price lost more than 12.5% and more than 12B in market cap on Friday and its reputation is seriously damaged.Is it worth it?

2)The second thought is about the trader Fabrice Tourre a product of the french mathematical education system who just as me straight out of college went to Wall Street. In many respect he is the perfect overachiever who did best on the path he was led onto without questioning too much its foundations. Now he is out there hanging. The guy is about six years younger than me and he helps me feel more secure about my choice in developing BICs of not going with the flow, even if it means in the short term paying a heavy price.


References:


http://www.nytimes.com/2010/04/17/business/17goldman.html?fta=y

WSJ Op-ed:Clearinghouses Are the Answer
Complex derivatives should be regulated like commodity futures.

Negative Numbers, Rational Numbers, Complex Numbers and BICs

This post is prompted by recent articles by Steven Strogatz in the New York Times where he explains how negative numbers , rational numbers, complex numbers come into the picture in order to better deal with real life problems. Prof. Strogratz is a professor of applied mathematics at Cornell University. His style is very entertaining. The articles are a very interesting and accessible read and some of the comments of readers are sometimes even more interesting.

Likewise, as I make the case in my Introductory article on BICs, the necessity for BICs emerge from the need to tractably manage the risk management problems brought about by the emergence of complex derivative contracts.

To Read:

http://opinionator.blogs.nytimes.com/2010/02/14/the-enemy-of-my-enemy/
http://opinionator.blogs.nytimes.com/2010/02/21/division-and-its-discontents/
http://opinionator.blogs.nytimes.com/2010/03/07/finding-your-roots/?hp
http://knol.google.com/k/introduction-to-basis-instruments-contracts-bics-for-mathematics-finance-and#view

Inroduction to BICs -Top Pick Knol Award ! Cheers!

My article Introduction to Basis Instruments Contracts (BICs) for Mathematics, Finance, and Economics has received a Google Knol "Top Pick Knol Award". Cheers!


Ah! Someone highjacked the review section of the article and messed it up, Ritu..? anyways..

Geithner: Business Hedging Isn't Target - WSJ.com

Geithner: Business Hedging Isn't Target - WSJ.com: "Mr. Geithner's testimony Friday didn't shed much new light on details that lawmakers and industry players are clamoring to hear. Specifically, it remains unclear how regulators will determine when a contract is considered standardized. Mr. Geithner conceded the administration isn't ready to carve out a definition, although he promised it would be broad and 'designed to be difficult to evade.'"


Comment:
The question of a definition is indeed KEY.
BICs provide the best framework for providing a robust working definition. See:http://tinyurl.com/cyxhpa
With BICs markets, BICs would be the "standardized derivatives" and everything else would be composed of such BICs. It helps solve hedging ability issues that are matters of concern in this article. In addition, it in effect ensures that economic efficiency forces, in the search for the cheapest production cost, will push derivatives trades where they are cheapest, i.e. in a centrally cleared exchange system.

Editorial - Congress, the Banks and Derivatives - NYTimes.com

See my knol on the "Holistic Theorem"

This editorial makes a painfully & tragically poor traditional liberal argument for derivatives regulation even though the ultimate goal of regulating all derivatives trades is what is needed. It merely re-hashes the March 29,09 editorial piece. See:http://www.nytimes.com/2009/03/29/opinion/29sun1.html

They conclude by saying:
"Senator Tom Harkin has introduced legislation that would require exchange trading for derivatives. Representative Collin Peterson has introduced a bill that would tighten the regulation of derivatives’ clearinghouses. He acknowledges that his bill is not as strong as he would like but that Congressional politics left him no choice, telling The Times, “The banks run the place.”"

and I say: "duh"

In this specific instance, they fail to see that their is a unity of purpose between derivatives trading institutions and advocates of centralized clearing, and that is the most effective argument to be made in order to effect CENTRALIZED CLEARING OF ALL DERIVATIVES TRADES.

Why set yourself up for a fight against a party where the odds of winning are against you when you can simply & persuasively explain to the other party that it is in their best interest to switch to your side of the argument?
See:http://knol.google.com/k/phil-kongtcheu/the-holistic-theorem/24v2kgtuvzk2v/16

Note also that regulated BICs exchanges on different types of underlyings, by creating exchanges that most efficiently trade instruments that all customized derivatives merely combine would eliminate the loopholes of the proposed legislation

Introduction to Basis Instruments Contracts (BICs) for Mathematics, Finance, and Economics - a knol by Phil Kongtcheu

Introduction to Basis Instruments Contracts (BICs) for Mathematics, Finance, and Economics - a knol by Phil Kongtcheu

I have just received a notice from Ms. Carole Dobson conference manager that this knol "Introduction to Basis Instruments Contracts (BICs) for Mathematics, Finance, and Economics" has been selected for presentation at the "Quantitative Methods in Finance Conference (QMF) 2009" to be held 16-19 December 2009 in Sydney, Australia.

The conference site is at http://www.business.uts.edu.au/qfrc/qmf/index.html

This conference is a leading annual financial mathematics conference and I am pleased to be given this opportunity and really hope to be able to participate.

Geithner Plan: The False Dichotomy of Alternate Choices

Based on Meet the Press and This week interviews of Mr. Geithner, nobody at the the treasury seems to have seriously raised to the Secretary's attention, the possibility of a less costly, surgical, and more effective alternative through market making as I have advocated.

The False Dichotomy of Alternate Choices. False dilemma.

I cry a river over this.

Visit msnbc.com for Breaking News, World News, and News about the Economy

Estimating Asset Costs for TARP/PPIF in a Market Making Framework & BICs - a knol by Phil Kongtcheu

Estimating Asset Costs for TARP in a Market Making Framework & BICs - a knol by Phil Kongtcheu


This article is a follow-up to the knol article "Fair Value Pricing, Government Market Making and TARP" and uses the concept introduced in the knol article " Introduction to Basis Instruments Contracts (BICs) for Mathematics, Finance, and Economics".

In this article we seek to estimate the proportion of assets ultimately held by the Government in a market making model, their cost and the parameters needed to make such estimates.

An important financial insight of this analysis is that we show that market making results in earning a spread that makes market making loss unlikely.

Geithner plan arithmetic - Paul Krugman Blog - NYTimes.com

Geithner plan arithmetic - Paul Krugman Blog - NYTimes.com

I agree with the subsidy argument made here to reject the Geithner plan but the example while at first very neat, nonetheless misses an element of investors preferences: many investors have already lost a lot and it is not unreasonable for them to demand more to risk what they've got left. Here is how it works:

Let's suppose Dr. Krugman's net worth is $100 million (including job security and reputation) and I say we flip a coin with equal probability of head and tail.

If it falls on head, Dr. Krugman wins and receives $1 billion; If it falls on tail, he loses everything he has got and pays out his net worth of $100 million. Will he take the bait?

I do not know the structure of Dr. Krugman's risk preferences but I am sure most people will not take it, even though their expected gain here would be $450 million.

This is what I call the fallacy of expectations based risk management. Many of the firms that go under in every financial crisis make the same mistake, often advised by very, very smart people. They make their investment decisions based on expectations profiles without full appraisal of the sustainability of downside scenarios that higher order metrics such as variance/volatility or above fail to capture. It seems a lot of very, very smart people out there are still making the same kind of intellectually cute but intrinsically flawed argument.


For this reason, I think the more simplistic example of my earlier post makes a more robust argument explaining the subsidy part of the plan.

Geithner: My Plan for Bad Bank Assets - WSJ.com

Geithner: My Plan for Bad Bank Assets - WSJ.com

From what I understand from this piece, this plan deals with the capital structure of the funds that will purchase the assets, but not the mechanism through which the asset prices will be formed, i.e how the funds will price the assets...Umh...OK.
It seemed to me that the pb is not that there is no money out there, but that money does not want to touch those toxic assets and that the role govt in this is to come up with an efficient pricing mechanism that restores liquidity.


A few hours later,...
Well, in fact this plan is still a big unjustified subsidy to Wall Street compared to what I have proposed. To make it easy, consider this

Suppose you want to buy to buy a toxic asset T. You think that when you dispose of it in a year it will be worth $110. How much will you be willing to pay for it today? It all depends on the cost of borrowing. If you can get a 0% loan you can pay up to $110. If the interest rate is 10%, you will not pay more than $100 for T. So the lender who lends you money at 0% when the market on such loans is 10% is giving you a subsidy that you will share with the asset T seller. Furthermore lending such subsidized money to more than one potential buyer will ensure through competitive forces that the bulk of the subsidy is passed on to the seller. That's probably why Wall Street cheered today..

Senators Debate Fed's Role in Overseeing Systemic Risk - WSJ.com

Senators Debate Fed's Role in Overseeing Systemic Risk - WSJ.com
Reasonable debate to have. In my book BICs 4 Derivatives Volume I : Theory
(Chapter VIII, pp 192-195), I argued for a central counterparty organization as counterparty of reference on all trades which guarantees the payment of contractual agreements on both sides of a transaction.

The systemic risk overseeing entity should act as central counterparty of reference on all trades whose default may pose a systemic risk or act as a regulator and guarantor of last resort to private entities (exchanges, clearing houses,...) who play such a role.

As a guarantor of last resort, this entity may be best within FDIC; As guarantor of credibility through the power to print money, this entity may be best within the Central Bank authority. What is most important in my view is that its function be articulated as proposed above.

TALF Is Reworked After Investors Balk - WSJ.com

TALF Is Reworked After Investors Balk - WSJ.com

This subsidized lending program just looks like major league subsidy to the securities industry with layers of transaction costs that incentivize people to trade in potentially irrational way with cheap money and are likely to contribute to TARP assets price inflation . Why not just do market making as I have repeatedly suggested?

The key mistake here is that policy makers seem to confuse
- incentivizing trade on securities with high economic impact which should be the mission of the government here and would lead to a more rational underwriting industry practices going forward
vs
- encouraging the potential reckless issuance of new securities which may in fact perpetuate the practices that led to this mess.

Mathematical Model and the Mortgage Mess - NYTimes.com

Mathematical Model and the Mortgage Mess - NYTimes.com

Yes, BICs 4 Derivatives Volume I : Theory chapter IX pp 203-232, showed that this was faulty and proposed the coherent alternative. When will you wake up people? when?
I cry a river over this. I cry a river over this....

As I have described at length in other writings(See this or this ), this crisis was a failure of the existing mathematical modeling framework at describing the real world dynamics of underlyings. Therefore the corresponding hedging and risk management strategies failed to represent reality and this fact becomes most obvious at times of crisis. One of the reasons for this development is the over-representation of former physicist at the highest levels of "quantdom" who have forced the adoption of a framework coming from another world. But "It ain't physics". It just ain't.
And I cry a river over this. I just cry a river over this....

They Tried to Outsmart Wall Street - NYTimes.com

They Tried to Outsmart Wall Street - NYTimes.com
The newsy or useful point the article is trying to make kind of eludes me. From the front page snapshot, I thought there would be some statistic showing demand for quants has shot up with the crisis other than the discrete opinion of a quant professor who has a conflicted interest in selling his academic curriculum to prospective students. The reporter apparently just opened his quant rolodex and got a number of known quants say something that would make them look good and prop their books. Unlike what the title "They Tried to Outsmart Wall Street" would suggest, it does not try to hold any of those accountable.

How about BICs Sir, how about BICs, it actually would help...
I cry a river over this...

As I have described at length in other writings(See this or this ), and keep on saying, this crisis was a failure of the existing mathematical modeling framework at describing the real world dynamics of underlyings. Therefore the corresponding hedging and risk management strategies failed to represent reality and this fact becomes most obvious at times of crisis. One of the reasons for this development is the over-representation of former physicist at the highest levels of "quantdom" who have forced the adoption of a framework coming from another world. But "It ain't physics". It just ain't.
And I cry a river over this. I just cry a river over this....

Steve Forbes Says Barack Obama's Economic Policy Repeats George W. Bush's Mistakes - WSJ.com

Steve Forbes Says Barack Obama's Economic Policy Repeats George W. Bush's Mistakes - WSJ.com
I strongly disagree with this argument against mark to market. As for dealing with market illiquidity, as I explain in my article on how to price illiquid TARP assets, when trading of assets economically vital is disrupted, government should set in to play a market maker's role, one of the additional positive results of such an approach being to enable effective market to market.

It is unfortunate that many it is shaping as republican vs. democrat thing.

Introduction to BICs Exchange Systems

In this post, I just added a presentation that hopefully more clearly stresses the relevance and applicability of BICs as a sorely needed risk management tool