Elie Ayache

The Medium of Contingency 978-1-137-28654-3 (eBook, PDF)

An Inverse View of the Market

• Format: PDF

Produktbeschreibung

In The Medium of Contingency Elie Ayache builds upon his ground-breaking book The Blank Swan, in exploring the intersection of philosophy and finance, introducing new notions of price and market. Inverting the received view, he now sees a creation of matter in both the market and its metaphysics, rather than pure speculation. Once recognized as the proper medium of contingency and disassociated from the probabilistic and statistical tools traditionally used to model it, the market can be thought as 'real', in a new sense of reality corresponding to the new sense of matter. To bring this new and original perspective, The Medium of Contingency builds on probability theory as first formalized by von Mises and Kolmogorov, and later revisited by Shafer and Vovk. It utilises the author's extensive experience in derivatives pricing technology and software, as well as his work in the philosophy of contingency and contingent claims, to propose a new philosophicalinterpretation of Brownian motion and of the Black-Scholes-Merton formula. Then it completes the overturning of the traditional view of the market by arguing that there should be no difference, ultimately, between an underlying asset and the derivative written on it.

This book does not aim to change the market but the way we must think of it. It is the author's conviction that there can be no philosophy of the market, and consequently no thinking of it, without a philosophy of contingent claims and of derivative pricing. The book provides the missing piece, which the philosophy of probability cannot provide alone. Its scope, however, extends beyond the strict critique of financial mathematics, as it also, and perhaps most importantly, delivers the author's definitive treatment of the philosophically prominent and recently much discussed notion of contingency.

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Produktdetails

• Verlag: Palgrave Macmillan UK
• Seitenzahl: 414
• Erscheinungstermin: 15. Juni 2016
• Englisch
• ISBN-13: 9781137286567
• Artikelnr.: 44169541

Autorenporträt

ELIE AYACHE was born in Lebanon in 1966. Trained as an engineer at l'École Polytechnique of Paris, he pursued a career of option market-maker on the floor of MATIF (1987-1990) and LIFFE (1990-1995). He then turned to the philosophy of probability (DEA at la Sorbonne) and to derivative pricing and co-founded ITO 33, a financial software company, in 1999. Today, ITO 33 is the leading specialist in the pricing of convertible bonds, in the equity-to-credit problem, and more generally, in the calibration and recalibration of volatility surfaces. Elie has published many articles on the philosophy of contingent claims, as well as The Blank Swan: The End of Probability.

Inhaltsangabe

Preface
Introduction
0.1 Derivative Valuation Theory vs. Derivative Pricing Technology
0.2 Implied Volatility vs. Real Volatility
0.3 Formal Reality vs. Physical Reality
I The Matter
1 The End of Probability
1.1 The Void of Possibilities
1.2 A New Matter
1.3 The Infinity of Markets
1.4 The End of Statistics
2 The Vision Ahead
2.1 Regime-Switching Model
2.2 Recalibration
2.3 Is Probability Necessary?
2.4 Price and Probability
2.5 A New Metaphysics
2.6 Absolute Contingency
2.7 The Market as an Opportunity for Speculative Thought
2.8 The Market as the Conversion of the Image of Thought
2.9 Ascending to the Metalogical Level
3 Introducing the Market
3.1 The Unexchangeable Place of Exchange
3.1.1 The market as a continual event
3.1.2 The market as quantitative history
3.1.3 The intensive nontemporal price process
3.1.4 The continuity of the discontinuity
3.1.5 The matter beyond antifragility
3.2 The Medium of Contingency
3.2.1 The technology of the future
3.2.2 The book behind the market
3.3 Pricing vs. Valuation
3.3.1 The surface of the market
3.3.2 The smile problem
3.3.3 The absolute local
3.3.4 In the middle of the event
4 The Thought Behind
4.1 Two Sides of Writing
4.2 Genesis of Price vs. Generation of Number
4.3 The Market as Geometry
4.4 State vs. Mark
4.5 Probability as an Internal Episode
4.6 The Alternative Axiomatic System of Shafer and Vovk
4.7 Extensive Difference vs. Intensive Difference
II The Matter in Brownian Motion
5 From Throwing the Dice to Grasping Brownian Motion
5.1 The Meaning of Probability
5.1.1 The Law of Large Numbers
5.1.2 Intuition
5.1.3 Matter
5.1.4 Reality
5.1.5 Tense
5.2 Changing the Meaning of Matter
5.2.1 Money
5.2.2 Time is not money
5.2.3 Money is place
5.3 Changing the Meaning of Reality
5.3.1 Ex-ante vs. ex-post
5.3.2 Brownian motion
6 From the Marvel of Brownian Motion to the Reality of the Market
6.1 The Technology of the Market
6.2 The Reality of the Market
6.3 The Market as an Inverted Order of Thought
III The Matter in Contingency
7 The Paper and the Tree
7.1 The Market and Time
7.1.1 Contingency, writing and exchanging
7.1.2 Price and time
7.1.3 Price and the event
7.1.4 Price and the trace
7.2 From the Mark to the Whole Market
7.2.1 Contingent payoff vs. contingent claim (first take)
7.2.2 The invention of writing (first take)
7.2.3 The exchange and the abyss
8 Archaeology of the Multiple
8.1 To Be vs. Can Be
8.1.1 Identification and transition
8.1.2 The danger of abstraction and the suspension of possibility
8.1.3 0 and 1
8.1.4 The real future
8.2 Chrono-logic
8.2.1 Probability as an integral
8.2.2 Chronology as a simulation of chrono-logic
8.3 Accounting for the Event
8.3.1 Money and the other face of the event
8.3.2 The accident of time and the necessity of work
8.3.3 An event that is not but that remains
8.3.4 Writing the event
9 Archaeology of the Exchange
9.1 All of the Market!
9.1.1 Impossible exchange, necessary exchange
9.1.2 The inverse view
9.2 Statistics as a Proto-market
9.2.1 Abstraction and the precision of the present state
9.2.2 The immanence of statistics and the immanence of the paper
9.2.3 The matter in statistics
9.3 The Matter in the Exchange
9.3.1 The non-individual singular
9.3.2 Single-case statistics
9.3.3 Contingency of the strike
10 Matter and Geometry
10.1 The Singularity of Writing
10.2 The Singularity of the Exchange
IV The Market of Contingent Claims (or the Matter in Black-
Scholes-Merton)
11 Towards a Contemporary Theory of the Market
11.1 The Stochastic Narrative of the Market
11.1.1 Definite states
11.1.2 Derivatives prices as states
11.1.3 Variations on lottery value and random price
11.1.4 The curse of the derivative value
11.2 The Trading Narrative of the Market
11.2.1 Can the derivative trade independently?
12 Incomplete Markets
12.1 Complete vs. Incomplete Markets
12.2 Martingale Measure of the Market
12.3 Equivocation
12.4 Incomplete Market when the market Is All There Is
13 The Central Knot
13.1 Contingent Payoff vs. Contingent Claim
13.2 Probabilistic Exit
13.3 The Alternative Exit
13.3.1 Differentiating the form
13.4 The Invention of Writing
13.5 Genesis
13.5.1 That they don't exist
14 The Hard Problem
14.1 The Ultimate Probability Spot
14.2 The Presentation of the Contingent Payoffs
14.3 The Lure of Theory
14.4 The Semantic Theory of the Market
15 The Book of the Market
15.1 Formalism and Meta-formalism
15.1.1 The instant of the formalism and the instant of the market
15.1.2 The infinity of the option price and the infinity of matter
15.1.3 Formal deduction of matter
15.1.4 A new book for a new reality
15.2 The Book of Genesis
15.2.1 Only the book can write history
15.2.2 One book instead of two theories
15.2.3 Only the book can bind the void
15.2.4 Only the book can settle the succession
15.2.5 Contemporary art
15.2.6 An ontology made of paper
15.3 The Trading Force
15.4 Coda
16 Denouement: The theory after the Two Narratives
Conclusion
17 Appendix 1: Regime-Switching Model 669
17.1 A Meta-contextual Pricing Tool
17.2 Recalibration
18 Append

Rezensionen

'Elie Ayache sticks a long sharp and elegant philosophical knife deep into the heart of the currently fashionable statistical and probabilistic approach to finance and life.'

Emanuel Derman, Professor of Finance, Columbia University. Author of My Life as a Quant (Wiley, 2007) and Models. Behaving. Badly: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life (Free Press, 2012)

'This major new book builds on Elie Ayache's previous book, The Blank Swan. It offers a radical critique of the idea that contemporary derivative trading is based on statistical reasoning and probabilistic models. In making this case, Ayache offers a radical philosophical view of the market as just one instance of the radical nature of contingency in social life. This remarkable book will appeal to philosophers, social scientists and finance specialists equally.'

Arjun Appadurai, Goddard Professor of Media, Culture and Communication, New York University. Author of Banking on Words: The Failure of Language in the Age of Derivative Finance (University of Chicago Press, 2015)

'Elie Ayache is a unique philosopher of probability and finance. For decades, he has worked at the ground floor of the world's derivatives markets, providing traders with the technology they need to create prices that financial theorists imagine emerging from some mysterious probabilistic process. And for decades he has sought the words that might help us all understand how the market creates both its realities and its illusions.

In The Blank Swan, published in 2010, Ayache deconstructed the conception of the market as a stochastic process, explaining how its prices emerge not from probability but from contingency itself. Spectacular breakdowns can occur, he leads us to understand, not because the market gets the prices wrong (underestimating, say, the probability of a black swan) but because there are no prices save those the market creates. In this newand persuasive book, he returns to the fray with an analysis that aims higher and goes deeper. There is indeed a stochastic structure in the market, he now tells us, but this structure is not an underlying reality that drives the market. It itself is a creation of the market.

This book delivers important and rewarding lessons for those who study probability, those who use it, and those who rely on it to understand our economic and financial world.'

Glenn Shafer, Board of Governors Professor at the Rutgers Business School Newark and New Brunswick. Co-author (with Vladimir Vovk) of Probability and Finance: It's Only a Game! (Wiley, 2001)

'The market has largely been, despite its overwhelming importance, one of modern philosophy's unknown continents. Elie Ayache's forceful new work The Medium of Contingency is thus at once a provocation, an invitation, and an essential resource. It gives to philosophy all it needs to begin grappling with the pre-eminent reality ofthe market, and thus to do its duty.'

Jon Roffe,Vice-Chancellor's Postdoctoral Fellow, Philosophy, University of New South Wales. Author of Abstract Market Theory (Palgrave, 2015)