Long Finance Big Data Needs Big Theories

Transcription

1 Royal Holloway, University of London Z/Yen Group Zest for Enlightenment Long Finance Big Data Needs Big Theories Professor Michael Mainelli Egham, Surrey 27 January 2014 Z/Yen Group Limited 90 Basinghall Street London EC2V 5AY tel: +44 (20)

2 Z/Yen Special City of London s leading commercial think-tank Services projects, coaching/training, expertise on demand, research, strategy, modern systems Sectors technology, finance, voluntary, professional services, outsourcing Independent Publisher Book Awards Finance, Investment & Economics Gold Prize 2012 for The Price of Fish British Computer Society IT Director of the Year 2004 for PropheZy and VizZy DTI Smart Award 2003 for PropheZy Sunday Times Book of the Week, Clean Business Cuisine 1.9M Foresight Challenge Award for Financial aboratory visualising financial risk 1997

3 Z/Yen in Finance Long Finance predicting bubbles (current) LIBOR litigation (current) Prediction markets (1998-present) Market Intelligence MoD, e.g. Vision 2020, and ongoing Avatars for Big Data ( ) PropheZy and VizZy Automation of Compliance monitoring ( ) Financial aboratory Club visualising risk ( )

4 SVM Developers

5 LIBOR

6 Surfeit of Wicked Problems The biggest shortcoming of the human race is our inability to understand the exponential function. Professor Al Bartlett, University of Colorado [source: Dr Tim Morgan, Dangerous Exponentials, Tullett Prebon (June 2010)]

7 2,000,000 Years of Commerce and We Still Don t Know The Price Of Fish

8 Great Debates

9 Big Data Is Too Small Not a physical modelling problem, so the speed of the environment is the speed of the substrate Regulation is monitoring the system s performance, not part of the system tools such as optimal leverage worth considering Large degrees of regulatory freedom needed Ashby s Law of Requisite Variety

10 Big Theories

11 Judge Voltaire «Il est encore plus facile de juger de l'esprit d'un homme par ses questions que par ses réponses.» It is easier to judge the mind of a man by his questions rather than his answers Pierre-Marc-Gaston, duc de Lévis ( ), Maximes et réflexions sur différents sujets de morale et de politique (Paris, 1808): Maxim xvii.

12 Impertinent Questions

13 About When would we know our financial system is working? Objectives: Expand Frontiers Change Systems Deliver Services Build Communities London Accord Financial Centre Futures Meta- Commerce Eternal Coin

14 Long Finance London Accord Founded 2005 Long Finance s ESG sustainable finance programme Over 60 contributors of over 400 ESG reports Tomorrow s Cities 2014 initiative

15 Financial Centre Futures Communities Many Hands Long Hand Geography matters Second Hand Visible Hand Virtual rules Washington Consensus

16 Systemic Meta-Commerce Scrunch

17 The Eternal Coin Self-referential system upon which all our analysis is based: What does GDP mean? Are competing currencies good or bad? Should money be a long term store of value? [Source:

18 Long Finance Publications

19 Film Interlude

20 What s All This Got To Do With The Price of Tea In China? [source:

21 Irreversible Time Confidence Accounting Unburnable Carbon Policy Performance Bonds Open Data Standards Markets Asymmetric Gain & Loss Recognition Pension Internal Growth Rates and Indemnity Assurance Insured Utility Banking Taxation Reform Uses & Abuses Of Discount Rates Cyber Reinsurance Mechanisms or Faiths? IP Options Markets, R&D Lotteries New Monetary Systems UK WIR... Get a detailed grip on the big picture. Chao Kli Ning

22 Irreversible Time Year Old Hole [Source: Towers Watson: & Peters, Ole (2011), The Time Resolution of the St. Petersburg Paradox, Philosophical Transactions of the Royal Society (2011) 369, ]

23 Confidence Accounting Scientific Measurement

24 Unburnable Carbon

25 Policy Performance Bonds

26 Value Z/Yen Group Pensions Internal Growth Rate 120 Mark to Market and Discount Rate Valuations Time (years) Contribution Pension IGR Asset-MtM Liability (Gilt)

27 Is Measurement Everything? Companies should seek to disengage from the process of managing short term earnings expectations Long is not just another four letter adjective for good Most theorists believe strongly that the first step towards governance, control and management, whether scientific or commercial or political, is measurement. We repeatedly find that not measuring people leads to low standards, slack practices and corruption If we adopt long does that mean we need to drop measurement?

28 Regulation & Radical Uncertainty Need to know how to talk to the market Dr Doolittle, e.g. oil price moves post 9/11 or aluminium and Murabaha today Need ways of eliciting unstructured information narrative analysis Need ways of storing unstructured information tagging querying and structuring risk rich responses

29 If you can write the specification, you haven t understood the problem. Delicious, Pinboard, Diigo Bookie DrupMarks, GetBoo, Sabros.us, SemanticScuttle, Shaarli Unexus (launching) Fluid Info, Fusionexperience tagclouds taxonomies and taxonomy markets prediction markets text analysis software BT Saturn, Partiview, Quid, Palantir heatmaps cartograms network labelling

30 Defense (sic) Against the Dark Arts How to change behaviour? You don t know Who s driving the market? PROBLEM Velocity & quantity of money You know Unknown Knowns Known Knowns Unknown Unknowns Known Unknowns Capital base returns You know SOLUTION You don t know

31 Science & Long Finance New technologies New models New measures then Big Data Get a big picture grip on the details. Chao Kli Ning

32 When Would We Know Our Commerce Is Working? When we re equitable - space? When we re sustainable - time? When we re happy?