[DcifrThs]

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dcfr,

what type of trading do you do?

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no particular type, i get my kicks learning.

to be more specific: i just want to learn about how to apply varying tools to the imprecise art + science of financial market research. this one seems key

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Based on what?

eastbay

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i dont' really know what you're asking here. are you asking what my "this is key" assumption is based on as it relates to using varying tools to analyze financial markets?

or are you asking about the "key" assumption as it relates to the actual tools i'm looking to learn.

i'll assume from here on out that it is the latter b/c the former seems fairly obvious.

first there seem to be more books popping up on the subject. the academic literature seems to be prodding slowly in that direction. further, we are experiencing an utterly widespread misuse (though not disillusionment) of financial models that apply notions from the more normally distrubuted physical sciences to those of the jumpy financial markets. note that while the misuse offers returns, irrespective of large blowups, they'll probably continue to be used. we aren't sold portfolio insurance anymore, but we are still taught the options pricing that was its brainchild.

i remember moving through my math-fin courses thinking, "hey, this mumbo jumbo seems to work, except when it doesn't...but that can't be too big a deal, can it?"

specifically, think about brownian motions. this is a type of randomness generating process that is "the" underpinning of scholes et. al.'s elegant world of options pricing. it is the basis on how the prices of risky assets are assumed to move in time. it is ubiquitous in interest rate models & term structure of volatility models.

but, it has it's initial home in the physical sciences (IIRC it has to do with how particles dissipate in different environments). the resulting (mis)use of it leads to audacious statements like those that came out of LTCM's shareholder letters (predicting with 100% precision the probability of losing $X/mo/year/5year periods).

it was (and still is) used with complete faith regarding its ability to mimic moves of risky assets& thus price them based on that voaltility. i was shown nice time period graphs of how this normally-esque distributed randomness produced return streams that looked like those of risky assets.

it seems now to be becomming more accepted (at a VERY VERY early stage) that our current mathematical models aren't robust to reality.

MBAs will still teach this stuff (for those who elect to take it) & MS Fin students will need to understand it. PhDs are going to publish paper after paper applying it as it has been applied (or coming up w/ new and itneresting applications)....but not 10-20yrs from now (if i had to guess).

thus, i want to learn as much about it as possible.

i'm not throwing out the old methodologies, i'm just becomming more aware of their limitations and would like to add more tools to my arsenal of understanding.

Barron