Papers by Ravi Kashyap (King-Kong Shake-Sphere)
Research in International Business and Finance, 2024
We describe several innovations designed to bring the best practices of traditional investment fu... more We describe several innovations designed to bring the best practices of traditional investment funds to the blockchain landscape. We highlight two main issues with the operation of mutual funds and hedge funds and suggest how blockchain technology can alleviate those concerns. Our innovations combine the superior mechanisms of mutual funds and hedge funds and provide detailed steps to implement them as blockchain smart contracts. We discuss how our designs overcome several blockchain bottlenecks and how we can make smart contracts smarter. Specifically, we illustrate how fund prices can be updated regularly like mutual funds and performance fees can be charged like hedge funds. In addition we show how mutually hedged blockchain investment funds can operate with investor protection schemes such as high water marks and measures to offset trading related slippage costs when redemptions happen.
Journal of Investing, 2024
We point out the primary riddle of risk management, which is that the life of a risk manager is v... more We point out the primary riddle of risk management, which is that the life of a risk manager is very similar to someone doing a slow walk on a tight rope. We provide a set of directives, the five pillars risk mitigation guidelines, aimed at brevity so that it is readily apparent what actions to perform, and implement, without much confusion. The guidelines provided are based on our experience on trading desks across many different asset classes, and they are particularly applicable for the burgeoning field of crypto risk management. It is generally a troubling scenario wherein someone tries to manage something that they do not fully understand. Risk, as we know it, requires a lot more in-depth studies to be performed before we are in a position to more fully appreciate the etiology of risk. Once that starts to happen, we will be in a better place to try and manage risk more thoroughly. Our present attempts are better referred to as risk mitigation.
Finance Research Letters, 2023
We consider the problem of being a cross-chain wealth management platform with deposits, redempti... more We consider the problem of being a cross-chain wealth management platform with deposits, redemptions and investment assets across multiple networks. We discuss the need for blockchain bridges to facilitates fund flows across platforms. We point out several issues with existing bridges. We develop an algorithm - tailored to overcome current constraints - that dynamically changes the utilization of bridge capacities and hence the amounts to be transferred across networks. We illustrate several scenarios using numerical simulations.
Annals of Operations Research, 2022
Models to price long term loans in the securities lending business are developed. These longer ho... more Models to price long term loans in the securities lending business are developed. These longer horizon deals can be viewed as contracts with optionality embedded in them. This insight leads to the usage of established methods from derivatives theory to price such contracts. Numerical simulations are used to demonstrate the practical applicability of these models. The techniques advanced here can lead to greater synergies between the management of derivative and delta-one trading desks, perhaps even being able to combine certain aspects of the day to day operations of these seemingly disparate entities. These models are part of one of the least explored, yet profit laden, areas of modern management.
A heuristic is developed to mitigate any loss of information, which might set in when parameters are estimated first and then the valuations are performed, by directly calculating valuations using the historical time series. This approach to valuations can lead to reduced models errors, robust estimation systems, greater financial stability and economic strength. An illustration is provided regarding how the methodologies developed here could be useful for inventory management, emissions trading and insurance risk mitigation. All these techniques could have applications for dealing with other financial instruments, non-financial commodities and many forms of uncertainty.
Statistica Sinica, 2022
We provide a justification for why, and when, endogeneity will not cause bias in the interpretati... more We provide a justification for why, and when, endogeneity will not cause bias in the interpretation of the coefficients in a regression model. This technique can be a viable alternative to, or even used alongside, the instrumental variable method. We show that when performing any comparative study, it is possible to measure the true change in the coefficients under a broad set of conditions. Our results hold, as long as the product of the covariance structure between the explanatory variables and the covariance between the error term and the explanatory variables are equal, within the same system at different time periods or across multiple systems at the same point in time.
Journal for Multicultural Education, 2021
शिशुर्वेत्ति पशुर्वेत्ति वेत्ति गानरसं फणी ।
साहित्यरसमाधुर्यं शङ्करो वेत्ति वा न वा ||
ś... more शिशुर्वेत्ति पशुर्वेत्ति वेत्ति गानरसं फणी ।
साहित्यरसमाधुर्यं शङ्करो वेत्ति वा न वा ||
śiśurvetti paśurvetti vetti gānarasaṁ phaṇī |
sāhityarasamādhuryaṁ śaṅkaro vetti vā na vā ||
The ultimate sweetness of music is understood and enjoyed even by an infant, even by an animal and even by a snake.
Indeed, we do not know whether the erudite scholar can really enjoy the sweetness of the nectar of literature, musical lyrics and the arts.
The popular belief in the scientific community is that, “Mathematics is the best way of expressing the universe ...”. But perhaps there is another contender, a stronger one in fact, and that might be music. We discuss how music, across cultures and time, has been the constant message of hope and happiness. Possibly, music is present in our very genetic codes giving us an innate sense of rhythm and endowing the capacity for appreciation even to newborns. We show using simple logic (isn't logic a gift from the domain of mathematics?) that one day, once we understand both mathematics and music better, we might see both of them as the same language. Until then perhaps, we should consider supplementing mathematics with music, or even replacing it if necessary, depending on the extent of comprehension in the audience. The educational (and policy) implications are to ensure that the future creators of knowledge are equally adept at both music and mathematics. This dual capability would enable researchers to encode their findings in such a way that it can be appreciated by an audience larger than the following we presently have for the mathematical transmission of knowledge.
Accounting and Finance, 2021
We consider in detail an investment strategy, titled “The Bounce Basket”, designed for someone to... more We consider in detail an investment strategy, titled “The Bounce Basket”, designed for someone to express a bullish view on the market by allowing them to take long positions on securities that would benefit the most from a rally in the markets. We demonstrate the use of quantitative metrics and large amounts of historical data towards decision making goals. This investment concept combines macroeconomic views with characteristics of individual securities to beat the market returns. The central idea of this theme is to identity securities from a regional perspective that are heavily shorted and yet are fundamentally sound with at least a minimum buy rating from a consensus of stock analysts covering the securities. We discuss the components of creating such a strategy including the mechanics of constructing the portfolio. Using simulations, in which securities lending data is modeled as geometric brownian motions, we provide a few flavors of creating a ranking of securities to identity the ones that are heavily shorted.
An investment strategy of this kind will be ideal in market scenarios when a downturn happens due to unexpected extreme events and the markets are anticipated to bounce back thereafter. This situation is especially applicable to incidents being observed, and relevant proceedings, during the Coronavirus pandemic in 2020-2021. This strategy is one particular way to overcome a potential behavioral bias related to investing, which we term the “rebound effect”.
World Futures, 2021
We discuss preliminary results from two experiments and put forth the notion that the development... more We discuss preliminary results from two experiments and put forth the notion that the development of sensory systems might be more geared towards discerning differences rather than for spotting similarities. We present the possibility that the necessity to spot differences might have evolved to ensure the survival of the organism, which suggests numerous other experiments to assess the response of participants to various stimuli. We consider our present state of affairs, wherein the need is to thrive and not merely survive, which requires us to spot similarities around us. We provide some suggestions on how this attribute can be developed, which includes mathematical education. We conclude with an alternate measure for intelligence, termed the Involvement Quotient (also, IQ), which gauges the level of involvement of the sense organs to whatever is happening around the individual.
Technological Forecasting & Social Change, 2021
We discuss the objectives of any endeavor in creating artificial intelligence, AI, and provide a ... more We discuss the objectives of any endeavor in creating artificial intelligence, AI, and provide a possible alternative. Intelligence might be an unintended consequence of curiosity left to roam free, best exemplified by a frolicking infant. This suggests that our attempts at AI could have been misguided. What we actually need to strive for can be termed artificial curiosity, AC, and intelligence happens as a consequence of those efforts. For this unintentional yet welcome aftereffect to set in a foundational list of guiding principles needs to be present. We start with the intuition for this line of reasoning and formalize it with a series of definitions, assumptions, ingredients, models and iterative improvements that will be necessary to make the incubation of intelligence a reality. Our discussion provides conceptual modifications to the Turing Test and to Searle’s Chinese room argument. We discuss the future implications for society as AI becomes an integral part of life.
We provide a road-map for creating intelligence with the technical parts relegated to the appendix so that the article is accessible to a wide audience. The central techniques in our formal approach to creating intelligence draw upon tools and concepts widely used in physics, cognitive science, psychology, evolutionary biology, statistics, linguistics, communication systems, pattern recognition, marketing, economics, finance, information science and computational theory highlighting that solutions for creating artificial intelligence have to transcend the artificial barriers between various fields and be highly multi-disciplinary.
Some of the topics we discuss are:
• The Benchmark for Brainpower
o Intelligence for What Sake
o Minds versus Machines
o Becoming Smarter than Albert Einstein!
• A Journey to the Land of Unintended Consequences
o I Don’t Know, A Great Answer
o Acing the Turing Test
o Mexican Chihuahua solving Korean Puzzles under a Mush-Room
o Merry-Go-Round of Trials, Errors and Revisions
o Gifts from the Realm of the Unintentional
o A Road map for Intelligence
• From Words to Symbols, A Curious and Confident Model of Intellect
Physica A: Statistical Mechanics and its Applications, 2020
To trade, or not to trade, that is the question!
Whether an optimizer can yield the answer,
... more To trade, or not to trade, that is the question!
Whether an optimizer can yield the answer,
Against the spikes and crashes of markets gone wild.
To quench one’s thirst before liquidity runs dry,
Or wait till the tide of momentum turns mild.
We develop a fundamentally different stochastic dynamic programming model of trading costs. Built on a strong theoretical foundation, our model provides insights to market participants by splitting the overall move of the security price during the duration of an order into the Market Impact (price move caused by their actions) and Market Timing (price move caused by everyone else) components. We derive formulations of this model under different laws of motion of the security prices, starting with a simple benchmark scenario and extending this to include multiple sources of uncertainty, liquidity constraints due to volume curve shifts and relating trading costs to the spread.
We develop a numerical framework that can be used to obtain optimal executions under any law of motion of prices and demonstrate the tremendous practical applicability of our theoretical methodology including the powerful numerical techniques to implement them. Our decomposition of trading costs into Market Impact and Market Timing allows us to deduce the zero sum game nature of trading costs. It holds numerous lessons for dealing with complex systems, wherein reducing the complexity by splitting the many sources of uncertainty can lead to better insights in the decision process.
B.E. Journal of Economic Analysis & Policy, Mar 3, 2020
We formulate one methodology to put a value or price on knowledge using well accepted techniques ... more We formulate one methodology to put a value or price on knowledge using well accepted techniques from finance. We provide justifications for these finance principles based on the limitations of the physical world we live in. We start with the intuition for our method to value knowledge and then formalize this idea with a series of axioms and models. To the best of our knowledge this is the first recorded attempt to put a numerical value on knowledge. The implications of this valuation exercise, which places a high premium on any piece of knowledge, are to ensure that participants in any knowledge system are better trained to notice the knowledge available from any source. Just because someone does not see a connection does not mean that there is no connection. We need to try harder and be more open to acknowledging the smallest piece of new knowledge that might have been brought to light by anyone from anywhere about anything.
Physica A: Statistical Mechanics and its Applications, 2019
We develop a novel methodology based on the marriage between the Bhattacharyya distance, a measur... more We develop a novel methodology based on the marriage between the Bhattacharyya distance, a measure of similarity across distributions of random variables, and the Johnson-Lindenstrauss Lemma, a technique for dimension reduction. The resulting technique is a simple yet powerful tool that allows comparisons between data-sets representing any two distributions. The degree to which different entities, (markets, universities, hospitals, cities, groups of securities, etc.), have different distance measures of their corresponding distributions tells us the extent to which they are different, aiding participants looking for diversification or looking for more of the same thing. We demonstrate a relationship between covariance and distance measures based on a generic extension of Stein’s Lemma. We consider an asset pricing application and then briefly discuss how this methodology lends itself to numerous market-structure studies and even applications outside the realm of finance / social sciences by illustrating a biological application. We provide numerical illustrations using security prices, volumes and volatilities of both these variables from six different countries.
Journal of Private Equity, 2019
We take a closer look at the life and legacy of Micheal Milken. We discuss why Michael Milken, al... more We take a closer look at the life and legacy of Micheal Milken. We discuss why Michael Milken, also know as the Junk Bond King, was not just any other King or run-of-the-mill Junk Dealer, but ”The Junk Dealer”. We find parallels between the three parts to any magic act and what Micheal Milken did, showing that his accomplishments were nothing short of a miracle. His compensation at that time captures to a certain extent the magnitude of the changes he brought about, the eco-system he created for businesses to flourish, the impact he had on the wider economy and also on the future growth and development of American Industry. We emphasize two of his contributions to the financial industry that have grown in importance over the years. One was the impetus given to the Private Equity industry and the use of LBOs. The second was the realization that thorough research was the key to success, financial and otherwise. Perhaps an unintended consequence of the growth in junk bonds and tailored financing was the growth of Silicon valley and technology powerhouses in the California bay area. Investors witnessed that there was a possibility for significant returns and that financial success could be had due to the risk mitigation that Milken demonstrated by investing in portfolios of so called high risk and low profile companies. We point out the current trend in many regions of the world, which is the birth of financial and technology firms and we suggest that finding innovative ways of financing could be the key to the sustained growth of these eco-systems.
Journal of Wealth Management, 2019
This paper acts as a collection of various trading strategies and useful pieces of market informa... more This paper acts as a collection of various trading strategies and useful pieces of market information that might help to implement such strategies. This list is meant to be comprehensive (though by no means exhaustive) and hence we only provide pointers and give further sources to explore each strategy further. To set the stage for this exploration, we consider the factors that determine good and bad trades, the notions of market efficiency, the real prospect amidst the seemingly high expectations of homogeneous expectations from human beings and the catch-22 connotations that arise while comprehending the true meaning of rational investing. We can broadly classify trading ideas and client market color material into Delta-One and Derivative strategies since this acts as a natural categorization that depends on the expertise of the various trading desks that will implement these strategies. For each strategy, we will have a core idea and we will present different flavors of this central theme to demonstrate that we can easily cater to the varying risk appetites, regional preferences, asset management styles, investment philosophies, liability constraints, investment horizons, notional trading size, trading frequency and other preferences of different market participants.
The Journal of Private Equity, 2019
We discuss a possible solution to an unintended consequence of having grades, certificates, ranki... more We discuss a possible solution to an unintended consequence of having grades, certificates, rankings and other diversions in the act of transferring knowledge; and zoom in specifically to the topic of having grades, on a curve. We conduct a thought experiment, taking a chapter (and some more?) from the financial markets, (where we trade pollution and what not?), to create a marketplace, where we can trade our grade, similar in structure to the interest rate swap. We connect this to broader problems that are creeping up, unintentionally, due to artificial labels we are attaching, to ourselves. The policy and philosophical implications of our arguments are to suggest that all trophies that we collect (including certificates, grades, medals etc.) should be viewed as personal equity or private equity (borrowing another widely used term in finance) and we should not use them to determine the outcomes in any selection criteria except have a cutoff point: either for jobs, higher studies, or, financial scholarships, other than for entertainment or spectator sports. We suggest alternate methods for grading and performance assessment and put forth tests for teaching and learning similar to the Turing Test for intelligence.
Research in Economics, 2018
We develop extensions to auction theory results that are useful in real life scenarios.
1. Sin... more We develop extensions to auction theory results that are useful in real life scenarios.
1. Since valuations are generally positive we first develop approximations using the log-normal distribution. This would be useful for many finance related auction settings since asset prices are usually non-negative.
2. We formulate a positive symmetric discrete distribution, which is likely to be followed by the total number of auction participants, and incorporate this into auction theory results.
3. We develop extensions when the valuations of the bidders are interdependent and incorporate all the results developed into a final combined realistic setting.
4. Our methods can be a practical tool for bidders and auction sellers to maximize their profits. The models developed here could be potentially useful for inventory estimation and for wholesale procurement of financial instruments and also non-financial commodities.
All the propositions are new results and they refer to existing results which are stated as Lemmas.
The equity risk premium puzzle is that the return on equities has far exceeded the average return... more The equity risk premium puzzle is that the return on equities has far exceeded the average return on short-term risk-free debt and cannot be explained by conventional representative-agent consumption based equilibrium models. We review a few attempts done over the years to explain this anomaly:
1. Inclusion of highly unlikely events with low probability (Ugly state along with Good and Bad), or market crashes, recently also termed as Black Swans.
2. Slow moving habit, or time-varying subsistence level, added to the basic power utility function.
3. Allowing for a separation of the inter-temporal elasticity of substitution and risk aversion, combined with consumption and dividend growth rates modeled as containing a small persistent expected growth rate component and a fluctuating volatility which captures time varying economic uncertainty.
We explore whether a fusion of the above approaches supplemented with better methods to handle the below reservations would provide a more realistic and yet tractable framework to tackle the various conundrums in the social sciences:
1. Unlimited ability of individuals to invest as compared to their ability to consume.
2. Lack of an objective measuring stick of value which gives rise to heterogeneous preferences and beliefs.
3. Unintended consequences due to the dynamic nature of social systems, where changes can be observed and decisions effected by participants to influence the system.
4. Relaxation of the transversality condition to avoid the formation of asset price bubbles.
5. How durable is durable? Since nothing lasts forever, accounting for durable goods to create a comprehensive measure of consumption volatility.
The world we live in produces fascinating phenomenon despite (or perhaps, due to) being a hotchpotch of varying doses of the above elements. The rationale for a unified theory is that beauty can emerge from chaos since the best test for a stew is its taste.
Many long standing puzzles seem to have been resolved using different techniques. The various explanations need to stand the test of time before acceptance; but then unexpected outcomes set in and new puzzles emerge. As real analysis and limits tell us: we are getting Closer and Closer; Yet it seems we are still Far Far Away...
Kashyap, R. (2017). Fighting Uncertainty with Uncertainty: A Baby Step. Theoretical Economics Letters, 7(5), 1431-1452., Aug 14, 2017
We can overcome uncertainty with uncertainty. Using randomness in our choices and in what we co... more We can overcome uncertainty with uncertainty. Using randomness in our choices and in what we control, and hence in the decision making process, could potentially offset the uncertainty inherent in the environment and yield better outcomes. The example we develop in greater detail is the news-vendor inventory management problem with demand uncertainty. We briefly discuss areas, where such an approach might be helpful, with the common prescription, “Don’t Simply Optimize, Also Randomize; perhaps best described by the term - Randoptimization”.
1. News-vendor Inventory Management
2. School Admissions
3. Journal Submissions
4. Job Candidate Selection
5. Stock Picking
6. Monetary Policy
This methodology is suitable for the social sciences since the primary source of uncertainty are the members of the system themselves and presently, no methods are known to fully determine the outcomes in such an environment, which perhaps would require being able to read the minds of everyone involved and to anticipate their actions continuously. Admittedly, we are not qualified to recommend whether such an approach is conducive for the natural sciences, unless perhaps, bounds can be established on the levels of uncertainty in a system and it is shown conclusively that a better understanding of the system and hence improved decision making will not alter the outcomes.
Market Microstructure is the investigation of the process and protocols that govern the exchange ... more Market Microstructure is the investigation of the process and protocols that govern the exchange of assets with the objective of reducing frictions that can impede the transfer. In financial markets, where there is an abundance of recorded information, this translates to the study of the dynamic relationships between observed variables, such as price, volume and spread, and hidden constituents, such as transaction costs and volatility, that hold sway over the efficient functioning of the system.
“My dear, here we must process as much data as we can, just to stay in business. And if you wish to make a profit you must process atleast twice as much data.” - Red Queen to Alice in Hedge-Fund-Land.
Necessity is the mother of all invention / creation / innovation, but the often forgotten father is frustration. In this age of (Too Much) Information, it is imperative to uncover nuggets of knowledge (signal) from buckets of nonsense (noise).
To aid in this effort to extract meaning from chaos and to gain a better understanding of the relationships between financial variables, we summarize the application of the theoretical results from (Kashyap 2016b) to microstructure studies. The central concept rests on a novel methodology based on the marriage between the Bhattacharyya distance, a measure of similarity across distributions, and the Johnson Lindenstrauss Lemma, a technique for dimension reduction, providing us with a simple yet powerful tool that allows comparisons between data-sets representing any two distributions.
We provide an empirical illustration using prices, volumes and volatilities across seven countries and three different continents. The degree to which different markets or sub groups of securities have different measures of their corresponding distributions tells us the extent to which they are different. This can aid investors looking for diversification or looking for more of the same thing.
In Indian mythology, it is believed that in each era, God takes on an avatar or reincarnation to fight the main source of evil in that epoch and to restore the balance between good and bad. In this age of too much information and complexity, perhaps the supreme being needs to be born as a data scientist, conceivably with an apt nickname, the Infoman. Until higher powers intervene and provide the ultimate solution to completely eliminate information overload, we have to make do with marginal methods, such as this composition, to reduce information.
As we wait for the perfect solution, it is worth meditating upon what superior beings would do when faced with a complex situation, such as the one we are in. It is said that the Universe is but the Brahma's (Creator's) dream. Research (Effort / Struggle) can help us understand this world; Sleep (Ease / Peace of Mind) can help us create our own world. A lesson from close by and down under: We need to “Do Some Yoga and Sleep Like A Koala”.
We look at a collection of conjectures with the unifying message that smaller social systems, ten... more We look at a collection of conjectures with the unifying message that smaller social systems, tend to be less complex and can be aligned better, towards fulfilling their intended objectives. We touch upon a framework, referred to as the four pronged approach that can aid the analysis of social systems. The four prongs are:
1. The Uncertainty Principle of the Social Sciences
2. The Objectives of a Social System or the Responsibilities of the Players
3. The Need for Smaller Organizations
4. Redirecting Unintended Outcomes
Smaller organizations mitigating the disruptive effects of corruption is discussed and also the need for organizations, whose objective is to foster the development of other smaller organizations. We consider a way of life, which is about respect for knowledge and a desire to seek it. Knowledge can help eradicate ignorance, but the accumulation of knowledge can lead to overconfidence. Hence it becomes important to instill an attitude that does not knowledge too seriously, along with the thirst for knowledge. All of this is important to create an environment that is conducive for smaller organizations and can be viewed as a natural extension of studies that fall under the wider category of understanding factors and policies aimed at increasing the welfare or well-being to society.
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Papers by Ravi Kashyap (King-Kong Shake-Sphere)
A heuristic is developed to mitigate any loss of information, which might set in when parameters are estimated first and then the valuations are performed, by directly calculating valuations using the historical time series. This approach to valuations can lead to reduced models errors, robust estimation systems, greater financial stability and economic strength. An illustration is provided regarding how the methodologies developed here could be useful for inventory management, emissions trading and insurance risk mitigation. All these techniques could have applications for dealing with other financial instruments, non-financial commodities and many forms of uncertainty.
साहित्यरसमाधुर्यं शङ्करो वेत्ति वा न वा ||
śiśurvetti paśurvetti vetti gānarasaṁ phaṇī |
sāhityarasamādhuryaṁ śaṅkaro vetti vā na vā ||
The ultimate sweetness of music is understood and enjoyed even by an infant, even by an animal and even by a snake.
Indeed, we do not know whether the erudite scholar can really enjoy the sweetness of the nectar of literature, musical lyrics and the arts.
The popular belief in the scientific community is that, “Mathematics is the best way of expressing the universe ...”. But perhaps there is another contender, a stronger one in fact, and that might be music. We discuss how music, across cultures and time, has been the constant message of hope and happiness. Possibly, music is present in our very genetic codes giving us an innate sense of rhythm and endowing the capacity for appreciation even to newborns. We show using simple logic (isn't logic a gift from the domain of mathematics?) that one day, once we understand both mathematics and music better, we might see both of them as the same language. Until then perhaps, we should consider supplementing mathematics with music, or even replacing it if necessary, depending on the extent of comprehension in the audience. The educational (and policy) implications are to ensure that the future creators of knowledge are equally adept at both music and mathematics. This dual capability would enable researchers to encode their findings in such a way that it can be appreciated by an audience larger than the following we presently have for the mathematical transmission of knowledge.
An investment strategy of this kind will be ideal in market scenarios when a downturn happens due to unexpected extreme events and the markets are anticipated to bounce back thereafter. This situation is especially applicable to incidents being observed, and relevant proceedings, during the Coronavirus pandemic in 2020-2021. This strategy is one particular way to overcome a potential behavioral bias related to investing, which we term the “rebound effect”.
We provide a road-map for creating intelligence with the technical parts relegated to the appendix so that the article is accessible to a wide audience. The central techniques in our formal approach to creating intelligence draw upon tools and concepts widely used in physics, cognitive science, psychology, evolutionary biology, statistics, linguistics, communication systems, pattern recognition, marketing, economics, finance, information science and computational theory highlighting that solutions for creating artificial intelligence have to transcend the artificial barriers between various fields and be highly multi-disciplinary.
Some of the topics we discuss are:
• The Benchmark for Brainpower
o Intelligence for What Sake
o Minds versus Machines
o Becoming Smarter than Albert Einstein!
• A Journey to the Land of Unintended Consequences
o I Don’t Know, A Great Answer
o Acing the Turing Test
o Mexican Chihuahua solving Korean Puzzles under a Mush-Room
o Merry-Go-Round of Trials, Errors and Revisions
o Gifts from the Realm of the Unintentional
o A Road map for Intelligence
• From Words to Symbols, A Curious and Confident Model of Intellect
Whether an optimizer can yield the answer,
Against the spikes and crashes of markets gone wild.
To quench one’s thirst before liquidity runs dry,
Or wait till the tide of momentum turns mild.
We develop a fundamentally different stochastic dynamic programming model of trading costs. Built on a strong theoretical foundation, our model provides insights to market participants by splitting the overall move of the security price during the duration of an order into the Market Impact (price move caused by their actions) and Market Timing (price move caused by everyone else) components. We derive formulations of this model under different laws of motion of the security prices, starting with a simple benchmark scenario and extending this to include multiple sources of uncertainty, liquidity constraints due to volume curve shifts and relating trading costs to the spread.
We develop a numerical framework that can be used to obtain optimal executions under any law of motion of prices and demonstrate the tremendous practical applicability of our theoretical methodology including the powerful numerical techniques to implement them. Our decomposition of trading costs into Market Impact and Market Timing allows us to deduce the zero sum game nature of trading costs. It holds numerous lessons for dealing with complex systems, wherein reducing the complexity by splitting the many sources of uncertainty can lead to better insights in the decision process.
1. Since valuations are generally positive we first develop approximations using the log-normal distribution. This would be useful for many finance related auction settings since asset prices are usually non-negative.
2. We formulate a positive symmetric discrete distribution, which is likely to be followed by the total number of auction participants, and incorporate this into auction theory results.
3. We develop extensions when the valuations of the bidders are interdependent and incorporate all the results developed into a final combined realistic setting.
4. Our methods can be a practical tool for bidders and auction sellers to maximize their profits. The models developed here could be potentially useful for inventory estimation and for wholesale procurement of financial instruments and also non-financial commodities.
All the propositions are new results and they refer to existing results which are stated as Lemmas.
1. Inclusion of highly unlikely events with low probability (Ugly state along with Good and Bad), or market crashes, recently also termed as Black Swans.
2. Slow moving habit, or time-varying subsistence level, added to the basic power utility function.
3. Allowing for a separation of the inter-temporal elasticity of substitution and risk aversion, combined with consumption and dividend growth rates modeled as containing a small persistent expected growth rate component and a fluctuating volatility which captures time varying economic uncertainty.
We explore whether a fusion of the above approaches supplemented with better methods to handle the below reservations would provide a more realistic and yet tractable framework to tackle the various conundrums in the social sciences:
1. Unlimited ability of individuals to invest as compared to their ability to consume.
2. Lack of an objective measuring stick of value which gives rise to heterogeneous preferences and beliefs.
3. Unintended consequences due to the dynamic nature of social systems, where changes can be observed and decisions effected by participants to influence the system.
4. Relaxation of the transversality condition to avoid the formation of asset price bubbles.
5. How durable is durable? Since nothing lasts forever, accounting for durable goods to create a comprehensive measure of consumption volatility.
The world we live in produces fascinating phenomenon despite (or perhaps, due to) being a hotchpotch of varying doses of the above elements. The rationale for a unified theory is that beauty can emerge from chaos since the best test for a stew is its taste.
Many long standing puzzles seem to have been resolved using different techniques. The various explanations need to stand the test of time before acceptance; but then unexpected outcomes set in and new puzzles emerge. As real analysis and limits tell us: we are getting Closer and Closer; Yet it seems we are still Far Far Away...
1. News-vendor Inventory Management
2. School Admissions
3. Journal Submissions
4. Job Candidate Selection
5. Stock Picking
6. Monetary Policy
This methodology is suitable for the social sciences since the primary source of uncertainty are the members of the system themselves and presently, no methods are known to fully determine the outcomes in such an environment, which perhaps would require being able to read the minds of everyone involved and to anticipate their actions continuously. Admittedly, we are not qualified to recommend whether such an approach is conducive for the natural sciences, unless perhaps, bounds can be established on the levels of uncertainty in a system and it is shown conclusively that a better understanding of the system and hence improved decision making will not alter the outcomes.
“My dear, here we must process as much data as we can, just to stay in business. And if you wish to make a profit you must process atleast twice as much data.” - Red Queen to Alice in Hedge-Fund-Land.
Necessity is the mother of all invention / creation / innovation, but the often forgotten father is frustration. In this age of (Too Much) Information, it is imperative to uncover nuggets of knowledge (signal) from buckets of nonsense (noise).
To aid in this effort to extract meaning from chaos and to gain a better understanding of the relationships between financial variables, we summarize the application of the theoretical results from (Kashyap 2016b) to microstructure studies. The central concept rests on a novel methodology based on the marriage between the Bhattacharyya distance, a measure of similarity across distributions, and the Johnson Lindenstrauss Lemma, a technique for dimension reduction, providing us with a simple yet powerful tool that allows comparisons between data-sets representing any two distributions.
We provide an empirical illustration using prices, volumes and volatilities across seven countries and three different continents. The degree to which different markets or sub groups of securities have different measures of their corresponding distributions tells us the extent to which they are different. This can aid investors looking for diversification or looking for more of the same thing.
In Indian mythology, it is believed that in each era, God takes on an avatar or reincarnation to fight the main source of evil in that epoch and to restore the balance between good and bad. In this age of too much information and complexity, perhaps the supreme being needs to be born as a data scientist, conceivably with an apt nickname, the Infoman. Until higher powers intervene and provide the ultimate solution to completely eliminate information overload, we have to make do with marginal methods, such as this composition, to reduce information.
As we wait for the perfect solution, it is worth meditating upon what superior beings would do when faced with a complex situation, such as the one we are in. It is said that the Universe is but the Brahma's (Creator's) dream. Research (Effort / Struggle) can help us understand this world; Sleep (Ease / Peace of Mind) can help us create our own world. A lesson from close by and down under: We need to “Do Some Yoga and Sleep Like A Koala”.
1. The Uncertainty Principle of the Social Sciences
2. The Objectives of a Social System or the Responsibilities of the Players
3. The Need for Smaller Organizations
4. Redirecting Unintended Outcomes
Smaller organizations mitigating the disruptive effects of corruption is discussed and also the need for organizations, whose objective is to foster the development of other smaller organizations. We consider a way of life, which is about respect for knowledge and a desire to seek it. Knowledge can help eradicate ignorance, but the accumulation of knowledge can lead to overconfidence. Hence it becomes important to instill an attitude that does not knowledge too seriously, along with the thirst for knowledge. All of this is important to create an environment that is conducive for smaller organizations and can be viewed as a natural extension of studies that fall under the wider category of understanding factors and policies aimed at increasing the welfare or well-being to society.
A heuristic is developed to mitigate any loss of information, which might set in when parameters are estimated first and then the valuations are performed, by directly calculating valuations using the historical time series. This approach to valuations can lead to reduced models errors, robust estimation systems, greater financial stability and economic strength. An illustration is provided regarding how the methodologies developed here could be useful for inventory management, emissions trading and insurance risk mitigation. All these techniques could have applications for dealing with other financial instruments, non-financial commodities and many forms of uncertainty.
साहित्यरसमाधुर्यं शङ्करो वेत्ति वा न वा ||
śiśurvetti paśurvetti vetti gānarasaṁ phaṇī |
sāhityarasamādhuryaṁ śaṅkaro vetti vā na vā ||
The ultimate sweetness of music is understood and enjoyed even by an infant, even by an animal and even by a snake.
Indeed, we do not know whether the erudite scholar can really enjoy the sweetness of the nectar of literature, musical lyrics and the arts.
The popular belief in the scientific community is that, “Mathematics is the best way of expressing the universe ...”. But perhaps there is another contender, a stronger one in fact, and that might be music. We discuss how music, across cultures and time, has been the constant message of hope and happiness. Possibly, music is present in our very genetic codes giving us an innate sense of rhythm and endowing the capacity for appreciation even to newborns. We show using simple logic (isn't logic a gift from the domain of mathematics?) that one day, once we understand both mathematics and music better, we might see both of them as the same language. Until then perhaps, we should consider supplementing mathematics with music, or even replacing it if necessary, depending on the extent of comprehension in the audience. The educational (and policy) implications are to ensure that the future creators of knowledge are equally adept at both music and mathematics. This dual capability would enable researchers to encode their findings in such a way that it can be appreciated by an audience larger than the following we presently have for the mathematical transmission of knowledge.
An investment strategy of this kind will be ideal in market scenarios when a downturn happens due to unexpected extreme events and the markets are anticipated to bounce back thereafter. This situation is especially applicable to incidents being observed, and relevant proceedings, during the Coronavirus pandemic in 2020-2021. This strategy is one particular way to overcome a potential behavioral bias related to investing, which we term the “rebound effect”.
We provide a road-map for creating intelligence with the technical parts relegated to the appendix so that the article is accessible to a wide audience. The central techniques in our formal approach to creating intelligence draw upon tools and concepts widely used in physics, cognitive science, psychology, evolutionary biology, statistics, linguistics, communication systems, pattern recognition, marketing, economics, finance, information science and computational theory highlighting that solutions for creating artificial intelligence have to transcend the artificial barriers between various fields and be highly multi-disciplinary.
Some of the topics we discuss are:
• The Benchmark for Brainpower
o Intelligence for What Sake
o Minds versus Machines
o Becoming Smarter than Albert Einstein!
• A Journey to the Land of Unintended Consequences
o I Don’t Know, A Great Answer
o Acing the Turing Test
o Mexican Chihuahua solving Korean Puzzles under a Mush-Room
o Merry-Go-Round of Trials, Errors and Revisions
o Gifts from the Realm of the Unintentional
o A Road map for Intelligence
• From Words to Symbols, A Curious and Confident Model of Intellect
Whether an optimizer can yield the answer,
Against the spikes and crashes of markets gone wild.
To quench one’s thirst before liquidity runs dry,
Or wait till the tide of momentum turns mild.
We develop a fundamentally different stochastic dynamic programming model of trading costs. Built on a strong theoretical foundation, our model provides insights to market participants by splitting the overall move of the security price during the duration of an order into the Market Impact (price move caused by their actions) and Market Timing (price move caused by everyone else) components. We derive formulations of this model under different laws of motion of the security prices, starting with a simple benchmark scenario and extending this to include multiple sources of uncertainty, liquidity constraints due to volume curve shifts and relating trading costs to the spread.
We develop a numerical framework that can be used to obtain optimal executions under any law of motion of prices and demonstrate the tremendous practical applicability of our theoretical methodology including the powerful numerical techniques to implement them. Our decomposition of trading costs into Market Impact and Market Timing allows us to deduce the zero sum game nature of trading costs. It holds numerous lessons for dealing with complex systems, wherein reducing the complexity by splitting the many sources of uncertainty can lead to better insights in the decision process.
1. Since valuations are generally positive we first develop approximations using the log-normal distribution. This would be useful for many finance related auction settings since asset prices are usually non-negative.
2. We formulate a positive symmetric discrete distribution, which is likely to be followed by the total number of auction participants, and incorporate this into auction theory results.
3. We develop extensions when the valuations of the bidders are interdependent and incorporate all the results developed into a final combined realistic setting.
4. Our methods can be a practical tool for bidders and auction sellers to maximize their profits. The models developed here could be potentially useful for inventory estimation and for wholesale procurement of financial instruments and also non-financial commodities.
All the propositions are new results and they refer to existing results which are stated as Lemmas.
1. Inclusion of highly unlikely events with low probability (Ugly state along with Good and Bad), or market crashes, recently also termed as Black Swans.
2. Slow moving habit, or time-varying subsistence level, added to the basic power utility function.
3. Allowing for a separation of the inter-temporal elasticity of substitution and risk aversion, combined with consumption and dividend growth rates modeled as containing a small persistent expected growth rate component and a fluctuating volatility which captures time varying economic uncertainty.
We explore whether a fusion of the above approaches supplemented with better methods to handle the below reservations would provide a more realistic and yet tractable framework to tackle the various conundrums in the social sciences:
1. Unlimited ability of individuals to invest as compared to their ability to consume.
2. Lack of an objective measuring stick of value which gives rise to heterogeneous preferences and beliefs.
3. Unintended consequences due to the dynamic nature of social systems, where changes can be observed and decisions effected by participants to influence the system.
4. Relaxation of the transversality condition to avoid the formation of asset price bubbles.
5. How durable is durable? Since nothing lasts forever, accounting for durable goods to create a comprehensive measure of consumption volatility.
The world we live in produces fascinating phenomenon despite (or perhaps, due to) being a hotchpotch of varying doses of the above elements. The rationale for a unified theory is that beauty can emerge from chaos since the best test for a stew is its taste.
Many long standing puzzles seem to have been resolved using different techniques. The various explanations need to stand the test of time before acceptance; but then unexpected outcomes set in and new puzzles emerge. As real analysis and limits tell us: we are getting Closer and Closer; Yet it seems we are still Far Far Away...
1. News-vendor Inventory Management
2. School Admissions
3. Journal Submissions
4. Job Candidate Selection
5. Stock Picking
6. Monetary Policy
This methodology is suitable for the social sciences since the primary source of uncertainty are the members of the system themselves and presently, no methods are known to fully determine the outcomes in such an environment, which perhaps would require being able to read the minds of everyone involved and to anticipate their actions continuously. Admittedly, we are not qualified to recommend whether such an approach is conducive for the natural sciences, unless perhaps, bounds can be established on the levels of uncertainty in a system and it is shown conclusively that a better understanding of the system and hence improved decision making will not alter the outcomes.
“My dear, here we must process as much data as we can, just to stay in business. And if you wish to make a profit you must process atleast twice as much data.” - Red Queen to Alice in Hedge-Fund-Land.
Necessity is the mother of all invention / creation / innovation, but the often forgotten father is frustration. In this age of (Too Much) Information, it is imperative to uncover nuggets of knowledge (signal) from buckets of nonsense (noise).
To aid in this effort to extract meaning from chaos and to gain a better understanding of the relationships between financial variables, we summarize the application of the theoretical results from (Kashyap 2016b) to microstructure studies. The central concept rests on a novel methodology based on the marriage between the Bhattacharyya distance, a measure of similarity across distributions, and the Johnson Lindenstrauss Lemma, a technique for dimension reduction, providing us with a simple yet powerful tool that allows comparisons between data-sets representing any two distributions.
We provide an empirical illustration using prices, volumes and volatilities across seven countries and three different continents. The degree to which different markets or sub groups of securities have different measures of their corresponding distributions tells us the extent to which they are different. This can aid investors looking for diversification or looking for more of the same thing.
In Indian mythology, it is believed that in each era, God takes on an avatar or reincarnation to fight the main source of evil in that epoch and to restore the balance between good and bad. In this age of too much information and complexity, perhaps the supreme being needs to be born as a data scientist, conceivably with an apt nickname, the Infoman. Until higher powers intervene and provide the ultimate solution to completely eliminate information overload, we have to make do with marginal methods, such as this composition, to reduce information.
As we wait for the perfect solution, it is worth meditating upon what superior beings would do when faced with a complex situation, such as the one we are in. It is said that the Universe is but the Brahma's (Creator's) dream. Research (Effort / Struggle) can help us understand this world; Sleep (Ease / Peace of Mind) can help us create our own world. A lesson from close by and down under: We need to “Do Some Yoga and Sleep Like A Koala”.
1. The Uncertainty Principle of the Social Sciences
2. The Objectives of a Social System or the Responsibilities of the Players
3. The Need for Smaller Organizations
4. Redirecting Unintended Outcomes
Smaller organizations mitigating the disruptive effects of corruption is discussed and also the need for organizations, whose objective is to foster the development of other smaller organizations. We consider a way of life, which is about respect for knowledge and a desire to seek it. Knowledge can help eradicate ignorance, but the accumulation of knowledge can lead to overconfidence. Hence it becomes important to instill an attitude that does not knowledge too seriously, along with the thirst for knowledge. All of this is important to create an environment that is conducive for smaller organizations and can be viewed as a natural extension of studies that fall under the wider category of understanding factors and policies aimed at increasing the welfare or well-being to society.
• Here, we recount incidents demonstrating flawed outcomes - despite good intentions - that occurred at the management science journal and the insistence of the editorial members to continue to justify their mistakes, despite several polite pointers to nudge them to see a better alternative (Figure [fig:Adventures-in-Academia]).
• It is important to keep in mind that these articles (this and related ones about journal publication malpractices) are not about holding grudges or living in the past. And this is certainly not about hurting the feelings of some simple minded folk - perhaps, even certain well-intentioned people can be considered simple minded because of their limited awareness and inability to look beyond the rules and act rightfully when certain limited guidelines are not met; we mean no disrespect to anyone here, but every single one of us will succumb to the pressure of situations at times, but it is how someone responds, once they are made aware of better alternatives, that determines how much they are being influenced by Bias and B.S. - or, casting them in a bad light.
• We are certainly not encouraging the old adage that “Rules are meant to be broken”. We would like to change that proverb to “Rules are meant to be understood and refined - if necessary - to suit the situations”.
• As we have said elsewhere, we cannot forget the incidents that have happened before - broadly termed, history - since those mistakes will happen again. We cannot forget the past, but we can transcend it. Transcending the past here refers to learning lessons from the mistakes that happened before so that we - as a society - do not tread down the wrongful paths again.
• Let us remember this: Journals are just wrappers around papers. There are no good or bad journals. We have to look at papers - enclosed in journals - to understand their contribution.
• There are also no good or bad organisations. Organisations are just shells around shellfish selfish peoples.
• We also need to remember this before passing our judgment: there are no good or bad people, just seemingly tough situations and mediocre role models.
• We have to focus on individuals and their decision making without labelling organisations - or individuals - as good or bad.
• We want to mention one thing at the outset: "The source of most (all) human conflict (and misunderstanding) is not because of what is said (written) and heard (read), but is partly due to how something is said and mostly because of the difference between what is said and heard and what is meant and understood …”
• Hence, we hope you feel no offence to whatever we have said here. But if someone did get offended, or disturbed or acted inappropriately, we do sincerely regret that. Such misunderstandings imply that we are merely human, full of Bias and B.S. (The influence of the Seductive Siamese Twins - Bias and B.S. - are discussed in detail below and in the references). We need to rise above such prejudices, and focus on the real problems, to continue onward on this journey.
• We have suffered several dozen such incidents, which we wish to relate, relating to individuals we have encountered - and continue to come across - who are firmly under the grip of Bias and B.S. Hence, we hope to keep adding more material - and more importantly improving the existing material, in terms of connecting it to other similar incidents and editing the flow to aid better understanding - to this compilation over time: as we cover more chapters, as we uncover more experiences, as our understanding improves and as time permits.
• This is part of the King-Kong Shake-Sphere series and specifically from the part titled, “Adventures in Academia: Publishing in A* Journals by Rankings, Dealing with A** Holes at Universities and Finding A******** Individuals in Libraries”.
• This work is part of a larger work on love, peace, justice and truth titled: King Kong Shake-Sphere in a Business Jungle.
• Here, we recount incidents demonstrating flawed outcomes - despite good intentions - that occurred at the journal of behavioral and experimental finance and the insistence of the editorial members to continue to justify their mistakes, despite several polite pointers to nudge them to see a better alternative (Figure [fig:Adventures-in-Academia]).
• It is important to keep in mind that these articles (this and related ones about journal publication malpractices) are not about holding grudges or living in the past. And this is certainly not about hurting the feelings of some simple minded folk - perhaps, even certain well-intentioned people can be considered simple minded because of their limited awareness and inability to look beyond the rules and act rightfully when certain limited guidelines are not met; we mean no disrespect to anyone here, but every single one of us will succumb to the pressure of situations at times, but it is how someone responds, once they are made aware of better alternatives, that determines how much they are being influenced by Bias and B.S. - or, casting them in a bad light.
• We are certainly not encouraging the old adage that “Rules are meant to be broken”. We would like to change that proverb to “Rules are meant to be understood and refined - if necessary - to suit the situations”.
• As we have said elsewhere, we cannot forget the incidents that have happened before - broadly termed, history - since those mistakes will happen again. We cannot forget the past, but we can transcend it. Transcending the past here refers to learning lessons from the mistakes that happened before so that we - as a society - do not tread down the wrongful paths again.
• Let us remember this: Journals are just wrappers around papers. There are no good or bad journals. We have to look at papers - enclosed in journals - to understand their contribution.
• There are also no good or bad organisations. Organisations are just shells around shellfish selfish peoples.
• We also need to remember this before passing our judgment: there are no good or bad people, just seemingly tough situations and mediocre role models.
• We have to focus on individuals and their decision making without labelling organisations - or individuals - as good or bad.
• We want to mention one thing at the outset: "The source of most (all) human conflict (and misunderstanding) is not because of what is said (written) and heard (read), but is partly due to how something is said and mostly because of the difference between what is said and heard and what is meant and understood …”
• Hence, we hope you feel no offence to whatever we have said here. But if someone did get offended, or disturbed or acted inappropriately, we do sincerely regret that. Such misunderstandings imply that we are merely human, full of Bias and B.S. (The influence of the Seductive Siamese Twins - Bias and B.S. - are discussed in detail below and in the references). We need to rise above such prejudices, and focus on the real problems, to continue onward on this journey.
• We have suffered several dozen such incidents, which we wish to relate, relating to individuals we have encountered - and continue to come across - who are firmly under the grip of Bias and B.S. Hence, we hope to keep adding more material - and more importantly improving the existing material, in terms of connecting it to other similar incidents and editing the flow to aid better understanding - to this compilation over time: as we cover more chapters, as we uncover more experiences, as our understanding improves and as time permits.
• This is part of the King-Kong Shake-Sphere series and specifically from the part titled, “Adventures in Academia: Publishing in A* Journals by Rankings, Dealing with A** Holes at Universities and Finding A******** Individuals in Libraries”.
• This work is part of a larger work on love, peace, justice and truth titled: King Kong Shake-Sphere in a Business Jungle.
• Here, we recount incidents demonstrating flawed outcomes - despite good intentions - that occurred at the journal of business ethics and the insistence of the editorial members to continue to justify their mistakes, despite several polite pointers to nudge them to see a better alternative (Figure [fig:Adventures-in-Academia]). If this is the state of common sense and good judgements at the journal of business ethics, is it any wonder the business community is plagued with significant mistakes - driven by Bias and B.S., which are discussed below and in the links provided.
• It is important to keep in mind that these articles (this and related ones about journal publication malpractices) are not about holding grudges or living in the past. And this is certainly not about hurting the feelings of some simple minded folk - perhaps, even certain well-intentioned people can be considered simple minded because of their limited awareness and inability to look beyond the rules and act rightfully when certain limited guidelines are not met; we mean no disrespect to anyone here, but every single one of us will succumb to the pressure of situations at times, but it is how someone responds, once they are made aware of better alternatives, that determines how much they are being influenced by Bias and B.S. - or, casting them in a bad light.
• We are certainly not encouraging the old adage that “Rules are meant to be broken”. We would like to change that proverb to “Rules are meant to be understood and refined - if necessary - to suit the situations”.
• As we have said elsewhere, we cannot forget the incidents that have happened before - broadly termed, history - since those mistakes will happen again. We cannot forget the past, but we can transcend it. Transcending the past here refers to learning lessons from the mistakes that happened before so that we - as a society - do not tread down the wrongful paths again.
• Two of our papers were rejected incorrectly because they were considered to be previously published material.
• The first article - - was using a lot of Wikipedia sources to explain the terminology so that the article is completely self contained and easy for anyone to understand. This article also had a small section - which had overlapping lines from a web source - that discussed a related topic which was not central to the main topic of discussion. We even offered to remove these sections and wikipedia links but we were not allowed to submit the paper again. The offer to remove the material that the editors found objectionable should not even have been necessary since anyone with basic english reading comprehension would be able to see that the paper was novel in several ways and had numerous contributions to several areas of ethics, business, financial markets, human behavior, organization structure and so on.
• The second article - - was posted on a preprint website (Qeios). We even provided clarification from Qeios platform that our paper was a preprint and not previously published. Yet the editors - at that time - did not accept our paper for review. After one year, we revisited this matter again and the editor at that time - after one year - permitted our paper to be submitted again.
• This second incident is extremely important for lessons on human behavior and ethics. Mistakes and misunderstanding can happen anytime, anywhere and by anyone. But when we later acknowledge the wrongs and chart a righteous course forward, that is an example worth emulating. We are extremely glad to see this wonderful display of humanity.
• Let us remember this: Journals are just wrappers around papers. There are no good or bad journals. We have to look at papers - enclosed in journals - to understand their contribution.
• There are also no good or bad organizations. Organizations are just shells around shellfish selfish peoples.
• We also need to remember this before passing our judgment: there are no good or bad people, just seemingly tough situations and mediocre role models.
• We have to focus on individuals and their decision making without labelling organizations - or individuals - as good or bad.
• We want to mention one thing at the outset: "The source of most (all) human conflict (and misunderstanding) is not because of what is said (written) and heard (read), but is partly due to how something is said and mostly because of the difference between what is said and heard and what is meant and understood …”
• Hence, we hope you feel no offense to whatever we have said here. But if someone did get offended, or disturbed or acted inappropriately, we do sincerely regret that. Such misunderstandings imply that we are merely human, full of Bias and B.S. (The influence of the Seductive Siamese Twins - Bias and B.S. - are discussed in detail below and in the references). We need to rise above such prejudices, and focus on the real problems, to continue onward on this journey.
• We have suffered several dozen such incidents, which we wish to relate, relating to individuals we have encountered - and continue to come across - who are firmly under the grip of Bias and B.S. Hence, we hope to keep adding more material - and more importantly improving the existing material, in terms of connecting it to other similar incidents and editing the flow to aid better understanding - to this compilation over time: as we cover more chapters, as we uncover more experiences, as our understanding improves and as time permits.
• This is part of the King-Kong Shake-Sphere series and specifically from the part titled, “Adventures in Academia: Publishing in A* Journals by Rankings, Dealing with A** Holes at Universities and Finding A******** Individuals in Libraries”.
• This work is part of a larger work on love, peace, justice and truth titled: King Kong Shake-Sphere in a Business Jungle.
• The problem - and solutions - we highlight here are with respect to the hypothetical question: What if Galileo had written a paper about the Heliocentric theory and sent it for publication at a peer reviewed journal? The simple answer is that the paper would have remained rejected for a few hundred years. The complicated answer is discussed elsewhere, and in the references listed below.
• Our suggestion is to ensure that all review comments - for all papers - be made public and displayed by journals. This is especially important for rejected papers. It is also important to reveal the identity of the individuals making the comments. The pros and cons of this approach are discussed.
• Physical copies of the book - King-Kong Shake-Sphere on "Being A Human Being” - are likely to be available in physical book stores only next year.
• Book Burning Sessions (for those interested in such things) are more likely to happen next year since copies are likely to be available in book stores only then ...
• Also, the cost of the book currently is somewhat high and it will be very expensive to have a real proper book burning session (for those that derive more pleasure from longer book burning sessions).
• The main problem we consider is that it takes years (sometimes or most of the times in certain fields?) for knowledge to be recognized by editors and reviewers once it has been received. Many researchers, especially early on in their career, abandon a life of seeking knowledge because of the frustrations created by this situation. We point out many aspects of this issue and suggest some solutions by specifically urging COPE, (Committee on Publication Ethics) which seems to have been oblivious to these issues, to make suitable amendments to their guidelines.
• Maybe COPE is aware of these problems, and we are unaware of their awareness and efforts to tackle this issue. This is despite the fact that we made several attempts to send these issues, and related changes, to COPE. If such is the case, that COPE is aware and we are unaware, we simply wish to outline some suggestions - based on experience gained from actual incidents, since an ounce of experience is worth a ton of theory - towards the same problems we are all looking to resolve.
• Let us remember this: Journals are just wrappers around papers. There are no good or bad journals. We have to look at papers - enclosed in journals - to understand their contribution.
• There are also no good or bad organisations. Organisations are just shells around shellfish selfish peoples.
• We also need to remember this before passing our judgment: there are no good or bad people, just seemingly tough situations and mediocre role models.
• We have to focus on individuals and their decision making without labelling organisations - or individuals - as good or bad.
• We want to mention one thing at the outset: "The source of most (all) human conflict (and misunderstanding) is not because of what is said (written) and heard (read), but is partly due to how something is said and mostly because of the difference between what is said and heard and what is meant and understood …”
• Hence, we hope you feel no offence to whatever we have said here. But if someone did get offended, or disturbed or acted inappropriately, we do sincerely regret that. Such misunderstandings imply that we are merely human, full of Bias and B.S. (The influence of the Seductive Siamese Twins - Bias and B.S. - are discussed in detail below and in the references). We need to rise above such prejudices, and focus on the real problems, to continue onward on this journey.
• We have suffered several dozen such incidents, which we wish to relate, relating to individuals we have encountered - and continue to come across - who are firmly under the grip of Bias and B.S. Hence, we hope to keep adding more material - and more importantly improving the existing material, in terms of connecting it to other similar incidents and editing the flow to aid better understanding - to this compilation over time: as we cover more chapters, as we uncover more experiences, as our understanding improves and as time permits.
• This is part of the King-Kong Shake-Sphere series and specifically from the part titled, “Adventures in Academia: Publishing in A* Journals by Rankings, Dealing with A** Holes at Universities and Finding A******** Individuals in Libraries”.
• This work is part of a larger work on love, peace, justice and truth titled: King Kong Shake-Sphere in a Business Jungle.
• The Galileo Syndrome has been discussed in more detail in one of the references given below, and will be covered in greater depth in later works.
• The problem - and solutions - we highlight here are with respect to the hypothetical question: What if Galileo had written a paper about the Heliocentric theory and sent it for publication at a peer reviewed journal? The simple answer is that the paper would have remained rejected for a few hundred years. The complicated answer is discussed elsewhere, and in the references listed below.
• Our suggestion is to ensure that all review comments - for all papers - be made public and displayed by journals. This is especially important for rejected papers. It is also important to reveal the identity of the individuals making the comments. The pros and cons of this approach are discussed.
Summary of The Galileo Syndrome
• The issues we face today in our knowledge pursuit, and educational, domains are because of how we have arrived at our present scientific / publication / research environment from a culture of intolerance and dishonesty - aka, the Galileo Syndrome. This syndrome can be summarized in one sentence as - “I do not understand - or like - what you are saying, so you are wrong”.
• Bias and B.S. - which are the two sources of most issues we face - are discussed in King Kong Shake-Sphere on Being A Human Being.
• With reference to the Galileo Syndrome - “I do not understand - or like - what you are saying, so you are wrong” - “I do not understand” is “Bias” and “I do not like” is “B.S.”.
• It is important to highlight what we emphasize several times throughout the King Kong Shake-Sphere series: “There are no good or bad people, we do what we do because of seemingly tough situations and mediocre role models”.
• When we say young minds, we are not referring to our biological age. Instead the focus is on the ability of any mind to understand something. Though it is true that older biological creatures - as they age - can understand languages better, what we witness is that many grown ups have very limited reading comprehension skills. Hence, putting aside irrelevant distinctions - such as grown ups and children - this present work is meant for someone to develop their ability to enjoy sounds in the english language, so that they can build a platform for themselves to advance towards more involved literary pieces, and appreciate them.
• This work is part of a larger work on love, peace, justice and truth titled: King Kong Shake-Sphere in a Business Jungle.
• It is said that History Repeats Itself. If something has to repeat, it has to first originate and not be forgotten. Something might repeat and yet seem new because it has been forgotten and hence it stays new for our experience. We wish that no work is forgotten, irrespective of whether it makes history, or not. Let us understand the nuances of history so that we can appreciate better when, or whether, history is being made, or not.
• The experiences of society are studied under the banner of history (End-note 1). History - as it currently practiced and taught - is very boring for the rest of us.
• History is generally forgotten because “His-Story” is not of great interest to “Me” (“Us”?). In particular, memorizing the dates and episodes in someone else's life has no appeal to anyone and certainly not to me. Would I - and you and all of us? - rather not have romantic dates instead of trying to recollect dull dates - days, months and years - in someone else's life? Is it not better to be solving wonderful mysteries instead of recollecting the weary incidents that happened to someone somewhere? How can Knowledge - what is known - stay on and be applicable to each of us?
• Surely, My-Story - A Mystery - is much more exciting, and interesting, to me than His-Story - History. Is it any wonder that Mysteries (My-Stories) are more appealing than Histories (His-Stories)? If we continue being forced to cram our minds with history, the many cases of lost memories, or forgetfulness, will increase. But if the message from history books is made applicable to everyday life, it stays relevant. This can be done by encapsulating the main lessons, from past events in a colorful manner, so that they are easy for us to recollect.
• This work is part of a larger work on love, peace, justice and truth titled: King Kong Shake-Sphere in a Business Jungle.
• We consider why using MRTs is necessary for our well-being by presenting a composition titled “Singapore Mass Rapid Transit (SMRT): The Perfect Transport.”.
• The bulk of this composition applies to several other MRT systems. There are many excellent transportation systems in several cities such as Hong Kong, New York, London and so on.
• Such transportation mechanisms are needed to ease congestion and reduce pollution. Better living conditions are very much necessary to increase well-being in densely populated urban areas.
• This work is part of a larger work on love, peace, justice and truth titled: King Kong Shake-Sphere in a Business Jungle.
• We see the work of evolution in our very essence - our very core, what makes us what we are - our human nature. To Transcend human nature might lead to tremendous possibilities - though for anyone to eclipse oneself can seem like an impossibility.
• Kalidasa was a master of the human heart and of human nature (End-note [enu:Kālidāsa-(Sanskrit:-कालिदास,]).
• This present composition is a tribute from King-Kong Shake-Sphere to Kalidasa, whose magically melodious works are unparalleled in the history of using language - which is merely a collection of sounds - to express human emotions. The dexterity that Kalidasa employed in moulding sounds to create melody is unmatched, despite many of his masterpieces probably being misplaced and rendered untraceable.
• We dedicate this piece to the many remarkable compositions from Kalidasa - and others - which have been lost in time. We just hope that in time, many more wondrous works will get created to fill the void created by the lost masterpieces of Kalidasa - and others.
• What does King-Kong Shake-Sphere know about Kalidasa?
– Kalidasa loves Kali-dosa.
• King-Kong Shake-Sphere - Also Shakespeare - knows that Kalidasa's favorite food must have been Kalidosa (End-note [enu:A-dosa-is]).
• This work is part of a larger work on love, peace, justice and truth titled: King Kong Shake-Sphere in a Business Jungle.
• Please Share. Tell This Tell-Tale, But Not At All Tall, Tale Of The Tall Tree.
• This work is part of a larger work on love, peace, justice and truth titled: King Kong Shake-Sphere in a Business Jungle.
• Oxymoron for the Moron, Expert of the Unknown.
• The main points we discuss are about the problems with the journal publication process and how to address them, which are considered in detail in the articles listed in the references.
• There are a number of remarkable editors, reviewers and individuals who go to great lengths to give very helpful suggestions to authors to improve their research. But unfortunately, they are a minority.
• We trace the fundamental reasons that gave rise to the issues that have plagued all of humanity - including the so called scientific community - and also show that the same drivers cause other issues in the rest of society as well. Bias and B.S. which are the two sources of most issues we face are discussed in King Kong Shake-Sphere on Being A Human Being.
• This work is part of a larger work on love, peace, justice and truth titled: King Kong Shake-Sphere in a Business Jungle.
• References and additional explanations - where we have a much more detailed discussion of The Galileo Syndrome - are provided at the end.
• This article is based on several email communications with editors of journals explaining to them the sorry state of affairs in our, so called, "scientific" community, and in particular elaborating the specific mistakes that have happened in their journal review process.
• The issues we face today in our knowledge pursuit, and educational, domains are because of how we have arrived at our present scientific / publication / research environment from a culture of intolerance and dishonesty - aka, the Galileo Syndrome. This syndrome can be summarized in one sentence as - “I do not understand - or like - what you are saying, so you are wrong”.
• The problems Galileo faced - and what many of us still face today - in the scientific community are a result of the intolerance and the dishonesty of half empty pots. Sadly, we still have many experts of the unknown who are unable to acknowledge - or accept - new knowledge, similar to what happened to Galileo.
• The following sentence will concisely describe any dishonest fool that becomes an obstacle for anyone - in their path towards obtaining a better understanding of the world, and sharing that knowledge with others.
• Oxymoron for the Moron, Expert of the Unknown.
• The main points we discuss are about the problems with the journal publication process and how to address them, which are considered in detail in the articles listed in the references.
• There are a number of remarkable editors, reviewers and individuals who go to great lengths to give very helpful suggestions to authors to improve their research. But unfortunately, they are a minority.
• We trace the fundamental reasons that give rise to the issues that have plagued all of humanity - including the so called scientific community, and also show that the same drivers continue to cause problems for the rest of society as well. Bias and B.S. - which are the two sources of most issues we face - are discussed in King Kong Shake-Sphere on Being A Human Being. Bias is jumping to conclusions without understanding something properly and B.S. is dishonesty.
• With reference to the Galileo Syndrome - “I do not understand - or like - what you are saying, so you are wrong” - “I do not understand” is “Bias” and “I do not like” is “B.S.”.
• King Kong Shake-Sphere on Being A Human Being is part of a larger work on love, peace, justice and truth titled: King Kong Shake-Sphere in a Business Jungle.
• References and additional explanations - where we have a much more detailed discussion of The Galileo Syndrome - are provided at the end.
• A detailed axiomatic approach to the Galileo Syndrome - and corresponding solutions - is postponed for another time, or perhaps another lifetime, depending on what time permits in this lifetime.
• It is important to highlight what we emphasize several times throughout the series: “There are no good or bad people, we do what we do because of seemingly tough situations and mediocre role models”.
• References and additional explanations are provided at the end.
• This work is part of a larger work on love, peace, justice and truth titled: King Kong Shake-Sphere in a Business Jungle.
• This article is based on several email communications with editors of journals explaining to them the sorry state of affairs in our, so called, "scientific" community, and in particular elaborating the specific mistakes that have happened in their journal review process.
• We all have must some experience playing with ourself, though perhaps we can get better at pleasing ourself.
• Would this - pleasing oneself - be a good skill that we should resume to master to put on our resume?
• Would a pleasing poem be a good option to please oneself, if one is not inclined to play with oneself?
• Anyway, there is a Lion in Figure ([fig:Guess-what-a]), which seems quite pleased.
• This work is part of a larger work on love, peace, justice and truth titled: King Kong Shake-Sphere in a Business Jungle.
• This content is Rated TT for Totally Tolerant and also Rated FL for Fun Loving, indicating that this material is meant only for those who are very tolerant or fun loving.
• Parents and Teachers Strongly Cautioned that reciting this poem - studying this material - can have wonderful moral effects on their young ones.
• Reader discretion is advised.
Concise Conspectus:
• In this work, we introduce King-Kong Shake-Sphere's ride - Thank, The Think Tank - by presenting a composition titled “Thank, The Think Tank: A Guide to King-Kong Shake-Sphere's Ride”.
• We will discuss the many wonders of Thank, The Think Tank and Thank The Think Tank, we will.
• This work is part of a larger work on love, peace, justice and truth titled: King Kong Shake-Sphere in a Business Jungle.
• This content is Rated TT for Totally Tolerant and also Rated FL for Fun Loving, indicating that this material is meant only for those who are very tolerant or fun loving.
• Parents and Teachers Strongly Cautioned that reading this work - reciting the corresponding poems and studying this material - can have wonderful moral effects on their young ones.
• Reader discretion is advised.
Composition: The Mist in The Closet of An Economist and The Gist of Becoming a Biologist
• In this work, King-Kong Shake-Sphere talks about coming out of the closet after he receives a confession from someone who likes being with biologists more than economists.
• This work is part of a larger work on love, peace, justice and truth titled: King Kong Shake-Sphere in a Business Jungle.
This work is part of a larger work on love, peace, justice and truth titled: King Kong Shake-Sphere in a Business Jungle.
A glimpse of what a journey towards the land of unintended consequences holds can be seen by reminding ourselves that all knowledge creation is but an unintended consequence. We start with an attempt to understand the papers written by others, (literature review of knowledge already created or summary of experiments performed under what conditions) and end up with papers of our own (results that add what is missing or suggest improvements). Although, to be precise, as researchers we do want to intentionally create new knowledge, but the exact new knowledge we end up creating is unintentional; we stumble upon it as we wander around the knowledge that is already in place. This is simply because our intentions, or what we intend, can only be catered from what we already know or, from existing knowledge; new knowledge, which is unknown, has to come from the realm of the unintentional.
A further glance in this direction might show that in the process of creating knowledge and trying to understanding the world better, we might just end up understanding one another better perhaps becoming more tolerant in the process, an unintended yet very welcome consequence; making us wonder whether the the true purpose of all knowledge creation might be to make us more tolerant. An unwelcome but unintended consequence of all this knowledge creation is that perhaps more knowledge is being lost than what is being (re?)-created. As someone has already said, everything might have already been said, but not by everyone and perhaps not to everyone (since we sometimes forget things that we ourselves might have said). Hoping that there is something here that is new for you or something that you have forgotten, which might make it seem new.
Each of the seven topics below, classified into three main categories, is presented as a separate part in itself and is meant to be self contained. Though at times we refer the reader to different sections for a more detailed exposition on a particular sub-topic. We regret any inconvenience that this loss of continuity might bring, but hope that this makes for a more concise presentation. There is a list of references and an appendix for each part where other relevant papers, graphical aids, results of statistical tests and proofs are given and linked into the narrative.
Admittedly, our initial ambitions to produce a normative theory for the topics considered here, are undone by the present state of affairs in social science modeling. Though we consider many elements of financial (social) systems at face value, this cannot be termed a positive theory. For now, if these end up producing a useful theory, our work is done. While a detailed axiomatic approach to uncertainty and unintended consequences is postponed for another time (or perhaps another lifetime), the present assortment has the following elements:
2.1 Microstructure Topics
1. A Dynamic Programming Approach to Separate the Impact and Timing of Trading Costs: David vs Goliath (You against the Markets)
• We develop a set of stochastic dynamic programming models that seek to separate the effect of one's actions in a financial market trading scenario from the actions of other players. Such a separation brings about a reduction in complexity since participants can better plan their course of action based on a greater focus on the set of controls and states that hold greater significance for their destiny while being cognizant of the implications of the actions of the rest of the participants.
2. A Tale of Two Consequences: Intended and Unintended Outcomes of the Japan TOPIX Tick Size Changes
• We apply the methodology from part [enu:David-vs-Goliath] to a recent event in financial markets (TOPIX 100 tick size changes on the Tokyo Stock Exchange in 2014) and illustrate how the ability to understand the impact of one's actions in isolation to the actions of others can lead to more insightful results.
3. Hong Kong - Shanghai Connect / Hong Kong - Beijing Disconnect (?): Scaling the Great Wall of Chinese Securities Trading Costs
• This case study applies the methodology from part [enu:David-vs-Goliath] to another recent event in financial markets (the opening of the Hong Kong Shanghai Connect, connecting the stock exchanges in the two cities in 2014) and illustrates a comparative approach at studying complex systems that perhaps can be one way to overcome a seemingly unsurmountable obstacle, that is, the lack of data.
2.2 Tools for Combating Uncertainty
1. Combining Dimension Reduction, Distance Measures and Covariance
• We develop a novel methodology based on the marriage between the Bhattacharyya distance, a measure of similarity across distributions of random variables, and the Johnson Lindenstrauss Lemma, a technique for dimension reduction. The resulting technique is a simple yet powerful tool that allows comparisons between data-sets representing any two distributions. The degree to which different entities, (markets, universities, hospitals, cities, groups of securities, etc.), have different measures of their corresponding distributions tells us the extent to which they are different, aiding participants looking for diversification or looking for more of the same thing. We consider an asset pricing application and then briefly discuss how this methodology lends itself to numerous marketstructure studies and even applications outside the realm of finance / social sciences by illustrating a biological application. We provide numerical illustrations using security prices, volumes and volatilities of both these variables from six different countries.
2.3 Asset Pricing Topics
1. Securities Lending Strategies, Exclusive Auction Bids
• We derive valuations of a portfolio of financial instruments from a securities lending perspective, under different assumptions, and show a weighting scheme that converges to the true valuation. We illustrate conditions under which our alternative weighting scheme converges faster to the true valuation when compared to the minimum variance weighting. This weighting scheme is applicable in any situation where multiple forecasts are made and we need a methodology to combine them. This part illustrates how the application of even simple econometric techniques can reduce uncertainty and prove to be rewarding.
2. Securities Lending Strategies, Valuation of Terms Loans using Option Theory
• We develop models to price long term loans in the securities lending business. These longer horizon deals can be viewed as contracts with optionality embedded in them and can be priced using established methods from derivatives theory, becoming to our limited knowledge the first application that can lead to greater synergies between the operations of derivative and delta-one trading desks, perhaps even being able to combine certain aspects of the day to day operations of these seemingly disparate entities.
• We develop a heuristic that can mitigate the loss of information that sets in when parameters are estimated first and then the valuation is performed by directly calculating the valuation using the historical time series. We run numerical simulations to demonstrate the practical applicability of these models. These models are part of one of the least explored yet profit laden areas of modern investment management.
3. Solving the Equity Risk Premium Puzzle and Inching Towards a Theory of Everything
• The equity risk premium puzzle is that the return on equities has far exceeded the average return on short-term risk-free debt and cannot be explained by conventional representative-agent consumption based equilibrium models. We review a few attempts done over the years to explain this anomaly:
• We explore whether a fusion of the above approaches supplemented with better methods to handle the below reservations would provide a more realistic and yet tractable framework to tackle the various conundrums in the social sciences:
• The world we live in produces fascinating phenomenon despite (or perhaps, due to) being a hotchpotch of varying doses of the above elements. The rationale for a unified theory is that beauty can emerge from chaos since the best test for a stew is its taste.
• Many long standing puzzles seem to have been resolved using different techniques. The various explanations need to stand the test of time before acceptance; but then unexpected outcomes set in and new puzzles emerge. As real analysis and limits tell us: we are getting Closer and Closer; Yet it seems we are still Far Far Away...
We provide a road-map for creating intelligence with the technical parts relegated to the appendix so that the article is accessible to a wide audience. The central techniques in our formal approach to creating intelligence draw upon tools and concepts widely used in physics, cognitive science, psychology, evolutionary biology, statistics, linguistics, communication systems, pattern recognition, marketing, economics, finance, information science and computational theory highlighting that solutions for creating artificial intelligence have to transcend the artificial barriers between various fields and be highly multi-disciplinary.
Some topics for discussion:
Chapter Zero is for Life ... Chapter One Onwards for the Exam
–The Benchmark for Brainpower
–The Nature of Uncertainty
–Objectively Subjective
–Some Minds versus More Machines
–A Journey to the Land of Unintended Consequences!!!
–How to Become Smarter than Albert Einstein?
–I Don’t Know, A Great Answer
–Imitation in the Imitation Game
–Mexican Chihuahua solving Korean Puzzles under a Mush-Room
–Evolutionary Tricks for the Empirics
–
1) Sergey Bubka and The Regulators
2) Risk Management: A Slow Walk On A Tight Rope
3) Alice in Business-Land
4) Sleeping Like A Koala
Body:
The story Alice in Wonderland has three main elements: The First is known as Anthropomorphism, all it means is that there are creatures and objects that can talk and have human emotions; secondly some things make sense; some don’t, which is known as literary non-sense. Lastly of course, there is everything else. Similarly, in today’s business world we have Uncertainty, which many people know more about than me; and there are Unintended Consequences, which very few of us know much about. So I will focus on the easiest part, which is also my strength and we will talk mostly about Everything Else today.
A central aspect of our lives is uncertainty and our struggle to overcome it. We discuss the nature of uncertainty in society and in our daily lives. One way in which we presently attempt to understand the world around us is by categorizing our observations into various fields or disciplines. We provide an alternate view of the role of various disciplines and consider why categorizations, despite being helpful need to be supplemented with a broader perspective to truly comprehending the cosmos and finding better solutions both for business and for everything else.
We discuss the one certainty despite all the uncertainty around us, which is the subjectivity in all decision making, which gives rise to unintended consequences. We consider a tale of two consequences: Unintended and Welcome; Unintended and Unwanted and how this is a recurring theme in all walks of life.
We briefly venture into the world of economics and finance, and an unintended consequence of technology which is creating complexity and also leading to the use of lots of data to deal with problems. We see how something seemingly scary, (monsters like mathematics) can become an extremely helpful tool, when the right mind set is adopted.
We consider some techniques that can be helpful to increase our intelligence; and if we make an assumption that Albert Einstein was smart, these techniques might show us how to become smarter than him.
Conclusion:
We conclude with a discussion of how we can overcome the uncertainty around us succinctly described as, “Fighting Uncertainty with Uncertainty”
The main topics we consider are:
The Nature of Uncertainty
Objectively Subjective
A Tale of Two Consequences
The Miracle of Mathematics
Becoming Smarter than Albert Einstein
Fighting Uncertainty with Uncertainty
Incomplete Early Draft-Soliciting suggestions, omissions and other feedback.
AMS Subject Codes: 01A05 History of mathematics; 97D40 Teaching methods; 03A10 Logic in the philosophy of science
We consider the essential elements of problem solving that will be useful from a business perspective in addition to being applicable to other areas of life. The discussion revolves around certain well-known problems from real life scenarios and a demonstration of how trial and error techniques have been used to solve these problems. We then pick simple mathematical tools that be applied to solve these problems. The idea is to understand how the intuition that all of us possess can be developed and elegant solutions can be obtained by applying simple mathematical results. The goal is to introduce to everyone (and help them develop an appreciation of) some basic mathematical techniques that can be useful towards the solving of real life problems.
This course (set of discussions) is meant to be completely self-contained and all the required concepts will be introduced and developed in the sections below. There will be topics covered from many fields including: marketing, psychology, operations, management, finance, literature, artificial intelligence, economics, physics, biology, etc. The essential requirement for reading this course is to have curiosity and a willingness to participate in the exercises with the objective of trying to find solutions independently. This course is open to people from all disciplines. The only mathematical skill required for this course is familiarity with addition.
At the end of this course, students (almost everyone in society if we define students as someone that wants to continue learning) will:
Understand the importance of trial and error in solving problems.
Develop an appreciation of simple mathematical tools that can complement the intuition behind solving business problems.
Develop the ability to approach new problems and come up new tools that might be necessary, on their own. Comprehend how new problems keep arising in real life situations as old problems are solved and the importance of human behavior in the creation and solution of many problems.
(An unintended consequence might be starting to believe that mathematics can become simple with minimal effort to understand the steps and the notation).
Develop the skills to apply these techniques to business situations.
1. News-vendor Inventory Management Problem
2. School Admissions.
3. Journal Submissions.
4. Job Candidate Selection.
5. Stock Picking.
6. Monetary Policy
7. Insurance Premiums and Payouts
– The Dilemma in Economics!
– Corporate Finance vs Project Finance
– Miscounting in Accounting
– The Nature of Uncertainty
– Objectively Subjective
– The Circle of Investment
– Useful Theories
– Syndicating Hong Kong Disneyland on Ocean-Sand and Hinterland – Microstructure under the Microscope
– A Tale of Two Consequences
– Hong Kong Shanghai Connect / Hong Kong Beijing Disconnect
How / Where / Why / When to Find: “The meanest SOB one (they) could find” …
The Nature of Culture ;
Miscounting in Accounting;
Sentiment for the Justice Department;
Auditors: Double Agents / Actors !!!;
Curfew for Creativity? ;
Was The Board Bored?;
What would you do?;
What is your Verdict?;
– A Joke at First and Also at Last
– Questions & Answers; Definitions & Assumptions
– History: A Product Structured by Winners
– A Depart-Mental Drill Down, is like a, Not so Small, Matryoshka Doll
– Rogue One on Delta One
– Cash Machines Exists only for Central Banks
– Dreaming of Work and Balancing Life, or Vice Versa
– How to be a Rogue Trader?
– "e", for Everywhere and for Exponential Increase.
– Sick Lesson from Nick Leeson (another Rogue Trader, played by Ewan McGregor in a movie called ...)
– What would you do?
– What is your verdict?
Some of the topics we discuss are:
– Guidelines for Prison Time Benefits
– You are Hired ... (The Trump Card)
– The Gold Standard of The Sage of Omaha
– Jail Time and Other Unintended Consequences
– Men in Black
– Team Work, Individual Bonus
– Cubicle Farm, Door Jam
– Open Source, Close Destination
– What would you do?
– What is your verdict?
a. Let us illustrate with an example, say, that we are looking at the list of exam scores in the class. The scores are sorted in some order, and you are seeing only the list of student IDs and the corresponding score. So it is harder for you to understand, the order by which, the scores were sorted. It might seem quite random to you. But if I told you the answer, that they are sorted by your first names, the uncertainty vanishes for you. But since your names are not displayed in the final list, it might be hard for you to guess the source of randomness. So, in many cases, the randomness vanishes once you know what is causing the randomness, and there was never any randomness for me, since I was creating the randomness for you.
b. Another example could be: suppose I am moving my hand around in the air. Are you able to guess where my hand position will be next? It is apparently random to you. But to me there is no uncertainty here, since I can put my hand wherever I choose to. This is true, even if I myself do not know at this moment in time, where it will be in the next moment in time. But I can decide, where to put it next, as that moment unfolds. The randomness or uncertainty is only for the viewers of the hand, but not to me.
c. This tells us a lot about Life, Uncertainty and Unintended Consequences: since if uncertainty is eliminated, there are, likely to be, no unintended consequences. This raises, the most important question, of all: What is the ultimate End Game of Life? It is perhaps, to discover, the source(s) of uncertainty that unfold(s) around us. So, Life then, just becomes, a Video Game of Uncertainty, with a lot of special effects (Sound / Pain / Pleasure etc. etc.). And the Universe, is nothing but, an Out of the Box, Xbox Arcade ...
d. In financial markets, as we have discussed before, the uncertainty is simply due to the actions of everyone else participating in the markets. This means that predictions in the financial markets (perhaps, all of social sciences) are valid only for a limited amount of time and we cannot be sure about the length of this time, since we need to constantly factor in the actions of everyone that can potentially influence a prediction, making it an extremely hard task.
e. This also means, that the more actions from other participants that we can anticipate, the lesser will be the uncertainty we need to contend with and the greater will be accuracy of our predictions, which will translate to greater profits.
And, if we simply, see the object, upon which shines, this Limelight,
Enlightenment, becomes our Birthright;
Freedom, is the only ticket, to discover, the collateral beauty, on this Flight,
Where everything, will be, within our Sight.
(We will continue with Collateral Beauty later, which, as some of us might know, is also a movie, telling us that Everything is Connected, so we will link this paper to our careers, financial markets and everything else, shortly ....)
The Price of Junk;
Milken was Milk’em LBOs (Leveraged Buyouts);
Rescuing Fallen Angels;
Milken’s Magic: The Pledge; The Turn; The Prestige; The Rise and Fall;
What would you do?
What is your verdict?
Can we Become Smarter than Albert Einstein? Becoming super intelligent might just be a child's play ....
What we learn from the story of Beauty and the Beast! We need to love the beast to find beauty.
A List of Monsters:
Recession;
Confusion;
Frustration;
Examination.
Controlled Recessions might be the key to Smoothen Business Cycles.
Confusion is the Beginning of Understanding.
Necessity is the mother of all creation / innovation / invention, but the father is Frustration.
Preparing for an Examination will significantly boost Learning.
Get Confused and Frustrated but Please Don’t Panic.
Or Simply:
A trek on Everything for Everyone …Everywhere.
Chapter Zero is for Life. Chapter One onwards from the textbook are for the Exam and to convince others that we know Finance (perhaps, also to convince ourselves that we know Finance, which can be harder at times). Here, there are no right or wrong answers; but for the exams there will be.
An attempt to answer basic yet foundational questions that might arise in the minds of someone, beginning the study of finance, before they can move on to more advanced introductions on this topic.
What is finance? What is the need fulfilled by financial instruments? What is the reason people trade? (and most times, again and again...) Why do we need trading venues? What is an ideal trading venue? What are Bid and Ask prices and why do we have them? How we value financial instruments? Why does this involve Prediction? What are the perils of prediction?
What are the skill sets we need to be successful in business and everything else? What is the most important skill set among all of them?
A look at the cause for the present trend in collecting and analyzing vast amounts of data. What is Finance/Economics? The Nature of Uncertainty; Objectively Subjective; The Circle of Investment; The Miracle of Mathematics; Useful Theories.
We digress to a discussion of the Net Present Value (NPV) of Journal Impact, the power of knowledge machines as opposed to money machines and conclude with, what could perhaps be, The Perfect Ranking (TPR).
We study the mechanisms that affect how securities are traded on an exchange, before delving into the specifics of the TSE tick size events. Some of the topics we explore are: The Venue Menu and How to Increase Revenue; To Automate or Not to Automate; Microstructure under the Microscope; The Price of Connections to High (and Faraway) Places; Speed Thrills but Kills; Pick a Size for the Perfect Tick; TSE Tick Size Experiments, Then and Now; Sergey Bubka and the Regulators; Bird’s Eye View; Deep Dive; Possibilities for a Deeper Dive; Does Tick Size Matter? Tick Size Does Matter!
– The Nature of Uncertainty
– The Venue Menu and How to Increase Revenue
– Microstructure under the Microscope
– Unintended Consequences and Everything Else
It is said that the Universe is but the Brahma’s (Creator's) dream. Research (Effort / Struggle) can help us understand this world; Sleep (Effortlessness / Peace of Mind) can help us create our own world. A lesson from close by and down under; We need to “Do Some Yoga and Sleep Like A Koala.”
Whether an optimizer can yield the answer,
Against the spikes and crashes of markets gone wild.
To quench one’s thirst before liquidity runs dry,
Or wait till the tide of momentum turns mild.
A trader’s conundrum is whether (and how much) to trade during a given interval or wait for the next interval when the price momentum is more favorable to his direction of trading. We develop a fundamentally different stochastic dynamic programming model of trading costs based on the Bellman principle of optimality and show that trading costs are a zero sum game. Built on a strong theoretical foundation, this model can provide insights to market participants by splitting the overall move of the security price during the duration of an order into the Market Impact (price move caused by their actions) and Market Timing (price move caused by everyone else) components. Plugging different distributions of prices and volumes into this framework can help traders decide when to bear higher Market Impact by trading more in the hope of offsetting the cost of trading at a higher price later. We derive formulations of this model under different laws of motion of the security prices. We start with a benchmark scenario and extend this to include multiple sources of uncertainty, liquidity constraints due to volume curve shifts and relate trading costs to the spread.
We discuss a few chapters from the Notes on Uncertainty, Unintended Consequences and Everything Else. Some of the topics are:
The Nature of Uncertainty;
A Journey to the Land of Unintended Consequences;
Objectively Subjective;
The Venue Menu and How to Increase Revenue;
Microstructure under the Microscope;
The Miracle of Mathematics;
A Tale of Two Consequences;
Hong Kong Shanghai Connect / Hong Kong Beijing Disconnect.
1. The Uncertainty Principle of the Social Sciences
2. The Objectives of a Social System or the Responsibilities of the Players
3. The Need for Smaller Organizations
4. Redirecting Unintended Outcomes
Smaller organizations mitigating the disruptive effects of corruption is discussed and also the need for organizations, whose objective is to foster the development of other smaller organizations. We consider a way of life, which is about respect for knowledge and a desire to seek it. Knowledge can help eradicate ignorance, but the accumulation of knowledge can lead to overconfidence. Hence it becomes important to instill an attitude that does not knowledge too seriously, along with the thirst for knowledge. All of this is important to create an environment that is conducive for smaller organizations and can be viewed as a natural extension of studies that fall under the wider category of understanding factors and policies aimed at increasing the welfare or well-being to society.
The relationship between zero and one is infinity. The relationship between zero and any number is infinity. Zero is nothing; but it has the power to create infinity. The percentage change from zero to any number is infinity. So if you want to make infinite progress, you just need to take the first step. You need to go from zero to one and you have accomplished infinite progress.
Now what should be the grade for someone who has shown infinite progress? If it is anything less than an A, that is an insult to anyone that has shown such tremendous progress.
But there are some guidelines. I think in this case, certain authorities have the guideline (more correctly, a rule, since we are bound to adhere to it) that the grades have to be on a curve: A B C, D, E, F to Z. There may be reasons for that and pretty valid ones at that. Let us not jump to conclusions that it is a bad rule. But their original intentions might have been something and now something else might be happening. Another unintended consequence, if you will. But in your case, given the infinite progress that each of you has shown, There will be no D, E, F. Not after this performance in the mid-term exam. Now, please stop worrying about the final exam and start learning more than what you have learnt thus far.
Also, another unintended effect of having grades (not just grades on a curves but any sort of grades) is that we end up focusing on how to get better grades rather than focusing on how to improve our learning. You see, to learn, we need to first learn how to learn. We will discuss some of the aspects of how to learn better later.
When you learn something, something else happens. It is an unintended consequence. It becomes easier to learn other things. And the more you learn, the easier it becomes to learn other things. You have started to connect the dots. When you have a jigsaw puzzle (Remember, we can create jigsaw puzzles very easily; as we did in the class the other day). It is hard when you start, but once you put a few pieces together, the other pieces start to fall in place by themselves. We can term this a Collateral Beauty, (also, an excellent movie about Love, Time and Death) and we can more technically group it under the umbrella of unintended consequences.
We present notes - we have compiled over time - that provides steps, clues and resources for anyone who is interested in studying Rudin’s Real and Complex Analysis.
We hope to keep adding more material - and more importantly improving the existing material - to this compilation over time: as we cover more chapters, as we uncover more results, as our understanding improves and as time permits.
We consider Rudin a deity of mathematics because of the large number of individuals who have been touched, influenced and blessed by his books, which are masterpieces for developing mathematical thinking. We bow in homage to Rudin - the Great Great Great Grand Grandfather God of Mathematics - for giving us the Baby, Papa and Grandpa Rudin books. The date this particular compilation was started has been set around May 02, 2020 to May 20, 2020 - since May 02, 1921 is the birthday of Rudin and May 20, 2010 was the day he passed away. Walter Rudin, Wikipedia Link;
We are deeply indebted to the mentors, teachers, gurus and guides on Mathematics, StackExchange who have helped with several questions we had, and who continue to guide thousands in their quest for greater understanding.
We have included several links from Mathematics, StackExchange; Wikipedia, The Free Encyclopedia; and other websites.
• “Being A Human Being” is a poem that describes the trials, tribulations and triumphs we face in our lives.
• This poem is part of a larger work on love, peace, justice and truth titled: King Kong Shake-Sphere in a Business Jungle ([https://www.researchgate.net/publication/373143006_King-Kong_Shake-Sphere_in_a_Business_Jungle||Click Research Gate Link]).
• A native of Hong Kong, King Kong Shake-Sphere is also known to several individuals as King-Kong, Kong, Shake-Sphere, Shakespeare, Sheikh, Sheikh-Spear, and so on.
• King Kong fights to establish justice, peace and the truth using two powerful weapons - love and honesty.
• The more complete - but still incomplete - King Kong story is narrated in King Kong Shake-Sphere in a Business Jungle ([https://www.researchgate.net/publication/373143006_King-Kong_Shake-Sphere_in_a_Business_Jungle||Click Research Gate Link]).
• The essence of King Kong's adventures - and what he fights for - is that:
1. We cannot have peace without justice.
2. We cannot have justice without the truth.
• King Kong struggles against several adversaries - from academia, the business world, the legal system and everywhere else - to make sure that people renounce the lies they have accepted.
• King Kong reminds everyone about the “Constitution of the Cosmos” which supersedes the constitution of every other country or jurisdiction.
• The “Constitution of the Cosmos” - given in King Kong Shake-Sphere in a Business Jungle ([https://www.researchgate.net/publication/373143006_King-Kong_Shake-Sphere_in_a_Business_Jungle||Click Research Gate Link]) - is succinctly described as three essential doctrines.
We discuss a legal incident pertaining to Cryptocurrencies in the life of King Kong - a resident of Hong Kong. This episode is based on true events though we have altered the narrative - and made parts of it sound fictional, although they could still be real as clarified in the disclaimer section - so that it reads more like a story rather than a dull historical legal account. This matter is related to King Kong's research regarding blockchain and the corresponding attempts by Kim Jong Hong - the dictator of North Croatia, who uses Hong Kong as a base - to thwart this work. We provide a brief description of the characters central to this tale to shed further light on the Cease and Desist (C&D) notice King Kong received from Kim Jong Hong's attorneys. We consider reasons why this C&D notice amounts to unethical behavior on the part of Kim Jong Hong and his attorneys.
We take a closer look at the reasons regarding why such unethical events are common place in our present day society. We start with a deep dive into: the legal system, the responsibility and functioning of the judicial machinery, why ethical issues arise, and the preparation individuals receive towards a legal career. We identity issues with our educational system and pinpoint the set of lies on which our present day society is built upon. We locate several fundamental causes for why dishonest and unethical behavior persists to a great extent in our lives today ~ circa 2023.
We consider justifications regarding why we - many of us - seem to have several resource constraints and how that inevitably leads to frictions between groups of people. We trace the origins of modern global businesses. We discuss how these beginnings of business entities have created motivations that can be detrimental the well-being of life on this planet. We discuss the meaning of Anti-Life, which will provide several suggestions on what constitutes Pro-Life behavior.
We look at the importance of having the right role models if we wish to raise a better generation of human beings. We discuss several examples of individuals - who should be classified as neither good nor bad, but who have committed horrendous acts - being regarded with admiration, which encourages later generations to stray onto paths that are Anti-Life. We suggest solutions that can help us ensure that our civilization can transcend the artificial boundaries and labels we have erected between ourselves, that seem to cause divisive conflicts.
We appreciate that some points made in this work can have alternate perspectives, especially from the so called opposing parties that have displayed anti-life behavior. That said, we provide strong evidence that should dispel any doubts regarding the arguments made. We provide lots of end-notes, references and material in the appendix that will help readers get a through understanding of the topics discussed including a picture of the real events that transpired with King Kong - and possibly future incidents that will continue to happen to him, as he attempts to fight for the truth, so that peace and justice could triumph and love could prevail.
We conclude with three sentences that constitute “The Constitution of The Cosmos” ending with one simple message, which was the beginning of this abstract.