## The Blank Swan

### October 12, 2010

Of possible interest to blog readers:

Quant Elie Ayache uses philosopher Quentin Meillassoux (his book *After Finitude*) in a talk about his recent book, *The Blank Swan: The End of Probability*. Clips of the talk (quite intriguing) available here, here and here. More on Ayache at ITO 33 and at Willmott.

Hat tip to Speculative Heresy.

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Posted by Fabian Muniesa

Filed in uncategorized

Tags: Elie Ayache, finance, Metaphysics, Probability

6 Comments » Filed in uncategorized

Tags: Elie Ayache, finance, Metaphysics, Probability

October 12, 2010 at 9:12 pm

I had never heard of Elie Ayache and, discovering some of his writings (thanks to this post), it seems highly interesting, albeit sometimes intriguing. The core idea that the market is not something you can (or cannot) predict but something you make may be, simple as it seems, the strongest critique ever made to financial theory and financial economics, because it clearly disconnects the debate on pricing and valuation from the question of risk modeling. Sociologists, of course, consider the market as a social construct, but they don’t really challenge the idea, “natural” from an investor’s point of view, that forecastability should be a matter of concern. Or do they?

October 12, 2010 at 10:24 pm

Also of particular interest, this older paper on variance swaps:

“The irony in quantitative finance, or specifically, in derivative pricing theory, is captured by the following observation. While the typical derivative paper is expressed in words and formulas aiming at the theoretical value of the derivative, it is really intended for derivative trading, which is the domain farthest away from theory. This is irony in the first sense. And while rational option pricing, as epitomized by the work of Black, Scholes and Merton, has triggered the explosion of options markets, the ensuing liquidity of option prices has turned volatility into a traded commodity thereby contradicting the crucial theoretical assumption of constant volatility. This is irony in the second sense.”

From: http://www.ito33.com/whitepapers/0609_ayache.pdf

November 4, 2010 at 9:06 am

A link that may interest you, to my latest Wilmott article:

http://www.wilmott.com/magazine/1011/1011_ayache.cfm

Cheers,

Elie A.

November 4, 2010 at 11:35 am

Thanks Elie. The article does not seem to be accessible without a subscription. Perhaps some blog readers will wait until someone uploads a free version somewhere… 😉

November 4, 2010 at 12:37 pm

My apologies to all readers. Here is a link to my Wilmott article that doesn’t need a subscription:

http://apreslemarche.blogspirit.com/list/papiers/2003769677.pdf

Cheers,

Elie A.

November 4, 2010 at 1:08 pm

[…] quick update to highlight the paper to which Elie Ayache just kindly pointed in comments to a recent plug: “The End of Probability”. Thanks […]