The models are getting much better: "[On] Black Monday, ... on no apparent news, the market plunged 23 percent. Economists later figured that, on the basis of the market's historic volatility, had the market been open every day since the creation of the Universe, the odds would still have been against its falling that much on any single day. In fact, had the life of the Universe been repeated one billion times, such a crash would still have been theoretically "unlikely." Jackwerth, Jens Carsten and Mark Rubinstein. 1996. "Recovering Probability Distributions from Option Prices." The Journal of Finance, 51: 5 (December): p. 1612.
On Thu, Aug 23, 2007 at 10:18:03PM -0400, sartesian wrote: > Garbage in is garbage out. Market movements are not hermetically > sealed, isolated events, based on an algorithm of most likely/least > likely. > > There is a real inability to maintain profitability- hardly a .000..138 > more ......6 experience for capitalism. > > > ----- Original Message ----- > From: "Michael Perelman" <[EMAIL PROTECTED]> > To: <[email protected]> > Sent: Thursday, August 23, 2007 9:21 PM > Subject: [PEN-L] the glories of financial engineering > > > > Wall Street has been hiring mathematicians (like Sabri) and physicists > to devise > > sophisticated computer models to beat the market. Here is Goldman > Sachs explanation > > about how its fund lost 30%: > > Anon. 2007. "The Game Is Up." The Economist (16 August). > > "Goldman Sachs ... said that its funds [one of which lost 30%] had > been hit by > > moves that its models suggested were 25 standard deviations away from > normal. In > > terms of probability (where 1 is a certainty and 0 an impossibility), > that > > translates into a likelihood of 0.000...0006, where there are 138 > zeros before the > > six." > > > > > > > > -- > > Michael Perelman > > Economics Department > > California State University > > Chico, CA 95929 > > > > Tel. 530-898-5321 > > E-Mail michael at ecst.csuchico.edu > > michaelperelman.wordpress.com > > -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu michaelperelman.wordpress.com
