Nassim
Nicholas Taleb’s Quantitative Notes & Lectures
A
mixture of my lectures, & musings when I am bored,
ranging from probability theory & quantitative finance to computational
epistemology.
Collected Published Papers (in One Volume)
New Paper on Errors
PREASYMPTOTICS,
INVERSE PROBLEMS, AND PLATONICITIES:
LECTURES ON RISK & PROBABILITY
Aims of
the lectures:
In short, statistics without being an idiot savant.
·
Pre-asymptotics (all that happens takes place
outside the limit),
·
Inverse Problems (many models can explain the
same phenomena), and
·
Platonicities (the reduction of the
fool)
are the
same illness under different symptoms.
Probability theory does not have to be Platonic. It can use mathematical tools
without being overly theoretical, or naively
theoretical (bogus essentialism).
You can go from empiricism to formalism --looking for inverse problems and
sensitivity to error in the choice of model.
Lecture
1 – Platonic
convergence & the Central Limit Theorem.
Lecture
2 - Preasymptotics & Small Sample Effects of α≤1 or Saint Petersburgh-Style
Infinite First Moment Situations.
Lecture
3 - The
fundamental problem of the 0th
moment and the irrelevance of "naked probability"
Lecture
4 - An epistemological derivation of power laws - The a Priori Problem of Small Probabilities . Summary
of main idea on fat tails. Derive operational probability --in other words what
you use in your decisions. "Beliefs" we will see do not count, but
impact and payoffs.
Lecture
5 - How to Build a Poisson
Buster – or why jump-diffusion is just ex-post fitting. Why "Fat Tails" are not Poisson
Lecture
6 - Option Pricing
& True Fat tails
Lecture
7- Small Probabilities & The Problem of Moral Hazard
Lecture
8 - L1 “Moments”
Quizzes 1 and 2 are here
and here.
OLD STUFF
TWEAKING THE GAUSSIAN (from old class lectures)–much of it is just mathematical exercises that I
hope are distribution-independent
The Dentist and His Emotions: The
mathematics of the effect of narrow sampling period on one’s emotional
well-being. [Application of Philostratus
in Monte Carlo in FBR]
Path Dependent Survival : Monte Carlo Experiment With Path Dependence of Trader Survival Rates. Why path dependence makes a trader’s 5
year survival slim (only pancreatic cancer has better survival rates).
Transaction Costs in the Literature with some tweaking
Volatility
Has a Natural Stochasticity to it even in the
Gaussian Homoskedastic World
Trading With a Stop in a Gaussian World
Dynamic
Hedging and Volatility Expectation
Sigma-P or Volatility in Price Space
Option Replication and Transaction Costs
Introduction to Gambler’s Ruin
The Value-at-Risk Debate
I have always held that VAR is charlatanism, a
dangerously misleading tool –like much of modern mathematized
academic finance. These were my first forays against naive empiricism and the
use of statistics in the social sciences. My language then was a bit primitive
–the point was the same.
"The
World According to Nassim Taleb" , the 5 page interview with Derivatives Strategy (January 1997) that started the debate. It is
a non technical comment on the Value-at-Risk, statistical biases in traders'
evaluations and the excesses of formalism in risk management. See Also "In Defense of VAR" , a reply by one Philippe Jorion,
Professor of Finance at U.C. Irvine and author of Value-at-Risk (Irwin, 1996). Finally, my rebuttal "Against VAR", a methodological statement that summarizes my
position against naive formalism and the raw application of engineering methods
in risk management. I describe the risks of misspecification and warn against
the primitive (and purely inductive methods) of frequency-based inference. In
my answer to Philippe Jorion I explain in slightly
more technical terms some of the statements made during my interview. Since
then I stopped paying attention/partaking of these debates, particularly with
untrained “risk experts ” unable to distinguish between skepticism and
nihilism.
Recent: The Externalities of Too Big to Fail (with Charles Tapiero), Physica A ; Why Did The Crisis of 2008 Happen(New Political Economy)
General Works: Errors, Robustness, and The Fourth Quadrant , a special issue of the International Journal of Forecasting, , Why We Never Used the Black-Scholes-Merton Option Formula , Statistical Intuitions and Domains (with Dan Goldstein).
Mathematical Sciences/Finance:* Mistakes of Risk Management, (with D. Goldstein and M. Spitznagel), Harvard Business Review, *Statistics and rare events, The American Statistician, August 2007, Vol. 61, No. 3 * Scale-Invariance in Practice: Some Questions and Workable Patches ( Complexity –special issue on econophysics, Santa Fe Institute). * Mild vs. Wild Randomness: Focusing on those Risks that Matter (with Benoit Mandelbrot), in The Known, the Unknown and the Unknowable in Financial Institutions Frank Diebold, Neil Doherty, and Richard Herring, editors, Princeton: Princeton University Press, *The Illusion of Dynamic Replication (with Emanuel Derman), Quantitative Finance, volume 5, 4,2005,* Random Jump, Not Random Walk (With Benoit Mandelbrot) * Mandelbrot Makes Sense Wilmott, February 2005*These Extreme Exceptions of Commodity Derivatives, in Helyette Geman’s Commodity Derivatives (Wiley, 2004) *On Skewness in Investment Choices, Greenwich Roundtable Quarterly, Volume 2, 2004. Common Errors in the Interpretation of the Ideas of The Black Swan and Associated Papers (was coming out in Critical Review, 21 (4) but I decided to pull the piece because of invasive editing ).
Literary Journals: *Roots of Unfairness Literary Research/Recherche Litteraire (Journal of the International Comparative Literature Association) 21.41-42 (2005): 241-254 *The Black Swan and the Arts ARTE-SCIENZA Multidisciplinary Symposium, Roma, September 2004.
Philosophy/Epistemology: “Decision and Probability” Blackwell Companion to the Philosophy of Action (2009, w. Avital Pilpel). My central idea:*The A Priori Problem of Observed Probabilities,* Risk and Epistemology (with Avital Pilpel) Risk and Regulation (LSE)*I problemi epistemologici del risk management in: Daniele Pace (a cura di) Economia del rischio. Antologia di scritti su rischio e decisione economica, Giuffré, Milano 2005 *On the Very Unfortunate Problem of Not Observing Probability Distributions )(with Avital Pilpel) an* Essay in the Epistemology of Power Laws (Wilmott, 2005)
Political Science: Invited essay in New Political Economy on the crisis of 2008