The Quant Delusion

In the year 1900 a little known French mathematician Louis Bachelier put forth the effort to eradicate risk involved with investing in financial markets. While his work was lost for 60 years, his original contribution to pricing options (more importantly, pricing volatility of a given asset) will become the cornerstone in what is today most widely used formula in finance; Black-Scholes-Merton formula for pricing options.

Here are some Trivial Pursuit questions for you: 1) What is the biggest market in the world for a physical commodity? 2) Is the gold market one of the smallest markets in the world for a physical commodity? I would guess that you answered: 1) Crude oil. 2) Yes. Gold is one of the smallest commodity markets in the world. If those were your answers, you are wrong. What everybody believes to be the "tiny gold market" is in fact the world's biggest physically traded commodity market. Let's have a look at some facts. The London Bullion Market Association (LBMA) "over-the-counter" (OTC) gold market trades approximately 90 percent of the world's physical gold trade.

 

Your standard late night futures entertainment featuring all of our usual guests; FX trading Japanese housewives; FED 3am Cayman SPV/SIV, and our newest guest; PBoC [feat. Swiss Central Bank] with their special performance; "Prop up the Euro" [executive producer; FRBNY/Ben Bernanke]. So, relax, put the kids to bed and tune in at app. 8 pm for yet another adventure in  *que music* "The Outer Limits .... of Finance". Standard visual help offered below by our usual sponsor; Finviz.com. 

Well that didn't take long. After European Commission announced last week that centralized fiscal policy is the only reasonable way to achieve Maastricht defined deficits by 2013; French president Nicolas Sarkozy is cited by Le Monde saying constitutional changes will be needed if France wishes to achieve Commissions mandated deficit of 3% by 2013.