Jamesian Philosophy Refreshed

The above graph is a visual representation of the Black-Scholes model. Or Black-Scholes- Merton if you want credit shared equitably and "you're not into the whole brevity thing," Mr Lebowski. As you can see, there are three axes. The x axis (the width of the box) is the price of the underlying asset, the stock price, treating the strike price in the center as 1. The y axis (the height of the box) is the volatility of that option. The z axis (the depth of the box) is the time to maturity [and either exercise or expiration].   As you can see, the plane of various shades of blue (the darker the blue, the higher) has a sharp crease at the front/center/bottom of the box, where the sharp difference between winners and losers on the lottery’s drawing date is indicated. We should also mention that the volatility that goes into the calculations as we’ve described them above is historical volatility. One of the assumptions of the BSM model is constant volatilit...

Not long ago I read the novel DEATH BENEFIT by Robin Cook. The set up is this: after the financial crisis of 2008, two newly unemployed bankers started LifeDeals Inc.  Their business plan? selling annuities to people with known illnesses, and given their database about the medical facts along with the tendency of many humans to be excessively optimistic about their own longevity, they could do so on terms profitable to themselves.  The two principals of LifeDeals are distinguished as characters: Russell is the quant and computer geek, Edmund the hale alpha male. The key to the plot is that LDI is heavily dependent on its settlements with patients with diabetes. Thus, a breakthrough in research into the regeneration of the pancreas using stem cells could destroy it. Another business entity that enters into the plot is called Big Skies. This seems to be a multi-strategy hedge fund, and it is shorting LDI in the credit derivatives market (in oth...

WSJ story Tuesday, vaguely sourced by plausible, tells us that the London Whale, Bruno Iksil, "once confided" to a certain colleague, "that when he wanted to avoid questions from supervisors about his trades, he sometimes would start discussing a mathematical term, equation, or other technical jargon, to confuse and end the conversation." He'd get free rein/reign because his bosses were afraid of hearing his explanation of  the analytical expression of a Lévy distribution one more time? Aaaaah.