Industrial Mathematics in Berlin

Today, I travelled to Berlin where the ECMI council (ECMI = European consortium for mathematics in industry) will meet.

This is my first time ever in Berlin. What I really enjoy:
- the clear directions given at the underground exits
- Dussmann das Kulturkaufhaus

The Job Only A Quant Can Do

The post has been inspired by this post in Seth's Blog.

It will be as short, because I've had similar thoughts that I put into various posts...about quant work under exogenous or endogenous influences, here, here, here, here.

Think like an entrepreneur. Think about delegating tasks. Think whether you could grow by partnering. What about, finding the correct and robust numerical scheme, programming it…?  When you delegate every job somebody else can do, you'll most probably find the most profitable job only you can do...and you've got the time to do it. Validate models…use the right market data for the model calibration…create the most advanced risk management process…aggregate risk data...prepare dynamic reports that behaves like a program.

We will be pleased helping to leverage this important job - build the decision support for optimal-risk taking.

Two Great Fictions I've Been Reading in One Week

When the Doves Disappeared, Sofi Oksanen - this is the story about two men of Estonia...spanning a time from 1941 to 1963. A story about the fiercely principled  freedom fighter Roland, and his slippery cousin Edgar, who always stays close to those in power.

In 1941 they've deserted the Red Army, When the Nazi regime occupied Estonia, Roland goes into hiding and Edgar took a new identity as their loyal supporter. 1963 Estonia is again under control…Edgar is now a Soviet apparatchik…

This is an artistically written book about a dark time.  It's a historic novel, a crime story, a romance, a war story...

I read all books of the  Finnish-Estonian writer Sofi Oksanen.


Outlaws, Javier Cercas - the story of the 16 years-old disaffected middle-class youth Ignacio who falls in with the gang of the teenage criminal El Zarco and his gorgeous girl, Tere. He crosses the border into their dangerous world, joining their crimes that escalate swiftly.

25  years later, Ignacio became a successful defense lawyer, he was asked by Tere to defend Zarco…

The setting is the Catalan City of Girona in the late 70s, after Franco's death. Ignacio described all this 30 years later in a series of interview with an unnamed writer.

This book surveys the borders between right and wrong. respectability and crime…its take is brilliantly plotted and I love the style.

It's on the favorite fiction of 2014 picks of the economist Tyler Cowen, who's blog I read frequently. I agree.

Before Outlaws, I read Soldiers of Salamis. Both books make Javier Cercas one of my favorite fiction writers.

Both books reviewed here are on my best-ever list.

On the Importance of Unit Tests

Caused by the continuous developement of new features and functionalities, the complexity of the UnRisk software package has grown rapidly over the last years. In many situations, additional features, which are needed by our customers, are integrated by modifications of existing and tested source code. 
The main problem is, that one has to be very careful to guarantee, that changes of the application do not break something that used to work before. To avoid these undesirable side effects of new implementations, a large portion of the  UnRisk functionality is tested on different platforms (Windows, Linux and Mac OS X) via automatically scheduled unit tests. Within these tests, valuation and calibration results are compared to reference numbers, and if deviations are not within a given tolerance level, the corresponding test is flagged as failed. 
The developers, which have modified the sources since the last build, are notified by email about the status of the test results.
Here is an example of the test summary, for the case where all unit tests succeeded:
 
 
Since the UnRisk package is built and tested on a daily basis, it helps a lot to immediatly detect problems, which occur in the software development process.

Agenda 2015 - A Portfolio of Products

Our compass for 2012 was the all-new UnRisk, for 2013 accelerate and for 2014  package and disseminate know how.

2014 - we released UnRisk FACTORY with a Bloomberg and an Excel Link and UnRisk 8 (yesterday) the new pricing and calibration engines providing a multi curve framework and eminent practical functions transforming lognormal distributed into normal distributed data spaces for interest-rate-model calibration and valuation. newUnRisk kernels are used for regime changes as required by the xVA project.

2015 - tie technologies intelligently together

With our mission to deliver the promise of serving individual requirements whilst driving generic technologies, we offer an expanding portfolio of products. They all have in common being solutions and development systems in one.

For years, we have built a technology stack that enables us and quant developers to create individual products swiftly  Carefully choosing the mathematics and mapping every practical detail.

Our technology stack combines the UnRisk Financial Language implemented in UnRisk gridEngines for pricing and calibration, a portfolio across scenario FACTORY, a VaR Universe, the UnRisk FACTORY Data Framework, UnRisk web and deployment services and an Excel Link...End of 2014 an xVA engine with emphasis on central counter party risk valuation will be available.

The product portfolio will include UnRisk Quant, UnRisk Capital Manager, UnRisk Bank, UnRisk Auditor...and focus on technologies that are required for the purpose in the adequate deployment environments related to functionality, performance and usage.

What will drive us in 2015? Meet the individual requirements even more precisely by configuring our technology stack intelligently.

UnRisk 8 Rolls Out

20-Nov-14 - we have released UnRisk PRICING ENGINE and UnRisk-Q version 8, introduced as UnRisk 8. This release is free for all UnRisk Premium Service Customers and will be shipped to all new customers immediately. UnRisk has been introduced 2001. Now UnRisk 8 is the 21st release.

What's new in UnRisk 8 has been compiled in Andreas' pre-announcement yesterday.

There's one thing: UnRisk-Q is the core of our technology stack. UnRisk PRICING ENGINE is a solution, but remains a technology, because our proprietary Excel Link provides a second  front-end, Excel, but the UnRisk Financial Language front end remains available.

It's perfect for quants, who want to build validation and test books in Excel, but develop new functionality atop UnRisk or, say, front office practitioners who want to run dynamic work books, but develop post processors aggregating results in a beyond-Excel way. Even better if both collaborate closely.

Tomorrow: UnRisk 8 is released

Tomorrow, we will release Version 8 of UnRisk. UnRisk 8 includes, as key features, the valuation of moderately structured fixed income instruments under a multi curve model, and the Bachelier model.

The multicruve model allows to use (in the same currency) different interest rate curves for discounting, e.g., the EONIA curve, and for determining variable cashflows, e.g. Libor3m or Libor 6m.

The Bachelier model for caps, floors, swaptions can replace the Black76 model, when interest rates are low. In Black vs Bachelier revisited, I pointed out the difficulties with Black 76, when interest rates approach zero. In such cases, (Black) volatilties explode, and orders of magnitude of several 1000 percent for Black volatilities are quite common. With the Bachelier model and its data, which may be used as calibration input, negative interest rates may occur without nasty instabilities.

Is UnManaging the Modern Management?

In no CEQ on board? I have suggested the promotion of quantitative managers for the C level pointedly. But this was the provocation phase. My strong belief is that an emergence of quantitative theories and methods will kill the tradition of strictly boss-driven organizations.

Traditional companies are "incremental". Strangely, only a few C level members tackle the challenge of innovation. They're trained for operational efficiency. Even in a crisis there are few organizing a bottom-up renewal?

Antipyramidal

I grew up in organizations where strategies were built at the top, big leaders controlled little leaders, team members competes for promotion…Tasks were assigned, rules defined actions. It was the perfect form of "plan-and-control": a pyramid. Only little space for change.

In an organizational pyramid the yesterday overweights the tomorrow. In a pyramid you can't enhance innovation, agility or engagement.

It is indispensable to reshape the organizational form.

Anticonform

Traditional manages want conformance to specifications, rules, deadlines, budgets, standards and principles. They declare "controlism" as the driving force of the organization. They hate failures and would never agree to "gain from disorder".

Not to make a mistake, control is important but freedom is important as well.

Management needs to deal with the known and unknown, ruled and chaotic, (little) losses for (bigger) gains…

Antibureaucratic

Bureaucracy is the formal representation of the pyramid and the regime of conformance.

Bureaucracy must die.

This part is inspired by Gary Hamel's Blog post in MIXMASHUP,

Change the organization

If we want to change the underlying form-and-ideology of management that causes the major problems, we may want to learn a little from the paradigms of modern risk management.

Duality - how to deal with the known and unknown
Boundaries - try to find the boundaries between the known and unknown
Optimization - optimization only works within the boundaries
Evolution - business in a networked world is of the co-evolution type
Game theory - a mathematical study of uncertainty caused by actions of others

This all needs quantitative skills. And if quantitative skills spread management fades.

The program grid

IMO, quants, that are self-esteemed, become stronger and contribute more to a better life if they drive a co-evolution in, what I call, a "program grid": a grid of individuals sharing programs, information and skills, without unleashing the very innovation making their solutions different. Program grids may be intra or inter-organizational.

Technology stacks, know how packages, workouts…destroy cold-blooded bureaucracy? If quants do not strive for getting picked, but choose themselves thy will contribute to the (indispensable) change.

Five-Year-Old Passes Microsoft Exam

Link from Marginal Revolution. Article from BBC NT.

IMO, another example why kids should learn programming early. It's fun and its building "nowists"…creating things quickly and improving constantly, without having permission of the preachers of ideology, rules…driving bottom-up innovation.

Electron Kaleidoscope


You are probably aware the Michael and I are doing some work on artificial graphene, a man-made material that mimics the electronic properties of real graphene - the material and our research project are explained in more detail in this blog post. In a nutshell, the system confines electrons to a hexagonally shaped "flake" with a lattice of so-called scatterers, that is, a lattice of small circular areas that are "forbidden" for the electrons.

I recently made plots of the electronic density (that is, the probability to find an electron at a certain point in the flake) for different eigenstates of the electronic wave functions. I found those plots so nice - from an artistic view point as well as a scientific one - that I thought I'd want to share them with you.

A short explanation for the scientifically minded readers: white means very high electron density, the color scale for decreasing density goes via orange and blueish colors to black, which means no electrons. The color scale is logarithmic, because I was not so much interested in the density as such, but the areas where the density is zero - these areas are called the "nodes" of the wave functions.

The symmetry of these nodes is dictated by a competition between the hexagonal symmetry of the outer confinement and the symmetry of the lattice of scatterers (the wave function is forced to be zero there). This competition (physicists call such a system a "frustrated system") results in the Kaleidoskope-like structure of the the density of electrons in that material.