Monday, April 24, 2017

some output...

more work

The Alpha Engine: Designing an Automated Trading Algorithm

We introduce a new approach to algorithmic investment management that yields profitable automated trading strategies.

This trading model design is the result of a path of investigation that was chosen nearly three decades ago. Back then, a paradigm change was proposed for the way time is defined in financial markets, based on intrinsic events. This definition lead to the uncovering of a large set of scaling laws. An additional guiding principle was found by embedding the trading model construction in an agent-base framework, inspired by the study of complex systems.

This new approach to designing automated trading algorithms is a parsimonious method for building a new type of investment strategy that not only generates profits, but also provides liquidity and stability to financial markets and does not have a priori restrictions on the amount of assets that are managed.


Trading model simulations.

History

The trading model algorithm outlined here is the result of a long journey that began in the early 1980s. Starting with a new conceptual framework of time, this voyage set out to chart new terrain. The whole history of this endeavor is described in the appendix. The key ingredients of this new paradigm are:
  • Intrinsic Time
  • The Emergence of Scaling Laws (*)
  • Trading Models and Complexity (*)
  • Coastline Trading (*)
  • Novel Insights from Information Theory
  • The Final Pieces of the Puzzle: Asymmetric Thresholds
(* I was lucky to have been part of this 12-year leg of the journey)

The trading model algorithm described here is the result of a meandering journey that lasted for decades. Guided by an overarching event-based framework, recasting time as discrete and driven by activity, elements from complexity theory and  information theory were added. In a nutshell, the proposed trading model is defined by a set of simple rules executed at specific events in the market. This approach to designing automated trading models yields an algorithm that fulfills many desired
features. Its parsimonious, modular, and self-similar design results in behaviour that is profitable, robust, and adaptive.


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Context

A crucial feature of the trading model is that it is designed to be counter trend. The coastline trading ensures that positions, which are going against a trend, are maintained or increased. In this sense, the models provide liquidity to the market. When market participants want to sell, the investment strategy will buy and vice versa. This market-stabilizing feature of the model is beneficial to the markets as a whole. The more such strategies are implemented, the less we expect to see runaway markets but healthier market conditions overall. By construction, the trading model only ceases to perform in low-volatility markets.

If investment strategies contribute to market liquidity, they can help stabilize prices and reduce the uncertainty in financial markets and the economy at large. For such strategies the investment returns can be viewed as a payoff for the value-added provided to the economy.


Your Help is Needed

In essence, what we present here is a proof of concept. We refrained from tweaking the model to yield better performance, in order to clearly establish and outline the model's building blocks and fundamental behavior. We strongly believe there is great potential for obvious and straightforward improvements,  which would give rise to far better models. Nevertheless, the bare-bones model we present here already has the capability of being implemented as a robust and profitable trading model that can be run in real-time. 

Nevertheless, with all the merits of the trading algorithm presented here, we are only at the beginning. The Alpha Engine should be understood as a prototype. The model can easily be improved by calibrating the various exchange rates by volatility, or by excluding illiquid ones. Furthermore, the model treats all the currency pairs in isolation. There should be a large window of opportunity for increasing the performance of the trading model by introducing correlation across currency pairs. This is a unique and invaluable source of information not yet exploited. Finally, a whole layer of risk management can be implemented on top of the models.

We hope to have presented a convincing set of tools motivated by a consistent philosophy. If so, we invite the reader to take what is outlined here and improve upon it...


--

This paper will appear as a chapter in the book High Performance Computing in Finance: Problems,  Methods, and Solutions, Chapman & Hall/CRC Series in Mathematical Finance, 2017


Thursday, March 23, 2017

More Networks

at work

This is a network of power. This time not economic power, but megawatts of capacity.

The pink nodes are power plants producing energy. They are the sources in this flow network. The green nodes are sinks. They are the utilities in the All Country World Index (MSCI ACWI) and are scaled by the MW of power reaching them directly or via the network of subsidiaries (blue nodes).

The right hand side of the figure reveals the piping in the network, where the nodes are removed and only the weighted and directed ownership links are shown.

This is an example of climate finance, a topic slowly appearing on the radars of institutions. See, for instance, Mark Carney's speech, as Governor of the Bank of England.

Data sources: GlobalData and Orbis. The work is done for the SEI Metrics Project.

Tuesday, December 20, 2016

sk8

x-sports
Skateboarding is hard.

Really hard.

It is one of those pursuits that allows humans to demonstrate insane skills.

Like:
Untethered high-lining (Dean Potter)


Proximity wingsuit flying (Halvor Angvik)


Triple corks on skis (Bobby Brown)


Quad corks on snowboards (Billy Morgan)


Big wave surfing (Garret McNamara)


Jumping into water (Laso Schaller, Dana Kunze)


Free soloing (Alex Honnold)


Skateboarding is very technical. The simplest trick is an Ollie. You basically just pop the board into the air using your feet. This is the basis for all street tricks. Unfortunately, mastering an Ollie takes a long time.

First you need to be comfortable riding your board. If you find balancing hard, try riding tight trucks. Once you get the hang of it, loosen them and enjoy the added sense of maneuverability. Now you can start to practice Ollies while stationary. Then while riding. Yes, you need to be patient.

Now, I thought that decades of snowboarding would help. Well, they do a little bit. Still took me some time to feel safe cruising. As a snowboarder, the unfamiliar freedom of being able to place your feet anywhere on the skateboard needed some time to understand (but this then turned out to really help my surfing!).

On a snowboard, I can pretty much do everything switch, also at high speeds. However, riding switch or fakie on a skateboard feels super uncomfortable. Yes, patience.

So, just to get the basics down takes ages. You can be skateboarding for quite some time and everything you do looks easy and unspectacular to bystanders.

Now imagine the level of skill you need to be able to do this:


Or this:


Or this:


Or this:


Or this:


Skateboarding is also hard because it is done on concrete or asphalt, with edges and corners looming everywhere. It is really intimidating to know that if you have to bail, you won't be landing in water or on snow.

For some insane reason there is an unwritten law, that dictates that street-style skateboarding is best executed without any kind of protection:

And don't search for "skateboard slam sessions" on YouTube.

So, why bother? Simple, it is just so much fun! Even the beginner parts;)

It is about a philosophy, an outlook on life.  A simple feeling, a state of being. Watch skate legend Rodney Mullen's TED talk. Or watch him perform at the age of 50:


Or listen to this geezer:


Or watch Tony Hawk reenacting his 900 at the age of 48:


And then there is vert and big-air skateboarding next to street...


For me, at 44, I just want to be able to cruise around town (meaning I need to be able to Ollie up a curb at some point) and learn to ride a bowl/mini ramp (i.e., frozen wave). All this while not getting hurt. The idea is to bridge snowboarding and surfing with skateboarding. It's about developing a new kind of intelligence in my feet and legs.

Still a long way to go:


My board has a wide deck, wide trucks, and soft wheels...

Monday, December 19, 2016

the center of the universe

information is physical
Just a random thought:

Earth is literally the center of the universe in terms of information processing.


Or at least, as far as we are aware of.

Because:

In the beginning, information processing manifested itself on molecular basis utilizing self-replicators a few billion years ago, as the emergent process called life unleashed itself.

Then, not too long ago, the neural networks assembled by the process of life became conscious and self-aware.

And currently, as these sentient beings bring information processing to a non-organic platform: binary computation.

Finally, as the cognizant beings push the limits of information processing into the quantum realm, employing the technology that emerged from their own information processing capabilities. This unlocks unprecedented new levels of computation.

--

Edit: made a meme out of this:




Thursday, December 1, 2016

What is Real?

am I even real?
Met the wonderful Lucy Hawking at TEDxSalford by chance (Science and Storytelling, The Consciousness of Reality). This led to an amazing opportunity allowing me to contribute a science essay to her newest children's book:

George and the Blue Moon
Lucy and Stephen Hawking
Penguin, 2016

Staying true to my little hobby, it was called:

What is Reality?

And it started like this:
Every day you wake up. Returning from the wonderful adventures you may have been having in your dreams, you become you again. The memories of who you are and what you have been up to in your life come back. And you also realize that there is a world that lies outside of yourself, simply called reality. Then you get up.

This all seems very ordinary and not very exciting. However, all of this is linked to the hardest question that humans have ever asked themselves: What exactly is reality? What is this thing, made up of space, time and objects, we live in?

And ended like this:
But for the moment we can comfort ourselves with two answers to the question, ‘What is reality?’

One is that reality is a much bigger, richer and more complex thing than we ever dared to dream.

Or a short answer could be, ‘I create my reality!’

Thursday, November 24, 2016

creativity

reggie watts is a genius
Some people are just insanely creative. We already met Beardyman. Reggie Watts is equipped with a similar set of skills. His web-page labels him as vocal artist, beatboxer, musician, and comedian. His performances are random and often improvised sequences of live looping and colorful vocal outbursts, comprised of sounds and noises and narrating in various accents and (mock) languages.


To appreciate how his talent affects people, one can read the remarkable compliments in the comment section of the YouTube videos of his performances. In a refreshing, albeit rare, contrast to the hatred and animosity mostly encountered there:
  • "Reggie Watts is my favorite human."
  • "He really is light years ahead of the rest of us humans. I love him. He is a genius."
  • "What planet did he come from? We don't deserve this kind of being. We're not worthy."
  • "This man is light-years ahead of his time."
  • "Absolutely no clue what was happening but brilliant"
  • "What a fucking genius..."
  • "I hereby nominate Reggie Watts to be Ambassador of Earth, and be first to make contact with aliens should they visit."
  • "Reggie is at the end of my rainbow!"
  • "I don't even laugh when watching Reggie anymore. I just admire him."



One reoccurring theme is Watts speaking with a British accent reminiscent of a university professor, talking abstract nonsense. Or is it?
"And the important thing to remember is that this simulation is a good one. It's believable, it's tactile. You can reach out -- things are solid. You can move objects from one area to another. You can feel your body. You can say, 'I'd like to go over to this location,' and you can move this mass of molecules through the air over to another location, at will."


"Now, we know that everything here is an illusion and that we are somewhere else. But the cool thing about that is, it feels pretty real. I mean -- you know what I mean? Like, it's pretty convincing. So, big credit to those people working hard there."


Why should you consider reality to be a simulation/illusion? Well...


some stuff

on being idiosyncratic
next to my love of science (see all the boring stuff;)




I really enjoy

  • snowboarding (nearly 30 years), climbing (23 years), surfing (20 years plus), and skateboarding (1/2 year)



  • traveling

  • electronic music and related parties/festivals





and then (in random order)


I constantly have to wonder about the existence of my own mind, the conscious experience it gives me of an external reality, and what this all could possibly mean (yeah, book project). 


I also like to be highly critical of the socio-cultural environment I was born into and from there move on to being critical of other ones (rant and rant). I am highly skeptical of our financial systems (faults and greed).


I like to question myself and my ideas/beliefs.


I try to put myself into other people's shoes, as I believe I would be that same person, given the same biography and brain chemistry/hard-wiring.


I am an irrational optimist. although I see, in my opinion, so many things that are so terribly and depressingly wrong all over the world, I try to keep my faith (this here).


I get inspired by a spiritual outlook on life that seeks happiness and wisdom within oneself and allows for the existence of other realms of "reality" outside space and time (e.g., Buddhism and certain esoteric ideas). I totally and fundamentally reject institutionalized theologies. does the term "spiritual atheism" make any sense?


I had been vegetarian for 12 years before turning vegan (as best as I can) 4 yeas ago. why? environmental, ethical, and health considerations (once I get around to it, this will be a long and heavily referenced piece).


I aim at remaining grateful for experiencing this stream of consciousness, regardless of its contents.


I try to resist the urge to be cynical as fuck as much as I can (e.g., while interacting with crackpots in news groups or discussing climate change).


I am deeply thankful to all the loved ones in my life, especially my wife, who make this journey so much more fun <3