How Black & Scholes is used

If you had an uncalibrated weighing machine do you use it to find “the true weight” or do you use to “find if you are losing weight and if your friends are heavier than you”?

Surely you would use it only to compare weights or how the weight has changed. Because the machine is uncalibrated it cannot be used to find the true weight.

Black & Scholes is an uncalibrated instrument that can tell the fair price of an option. It is uncalibrated because the market doesn’t always move in a geometric Brownian motion.

So people use it to compare prices of options or the price of the same option under different market conditions.

The various Greeks show how sensitive the price of an option is to various market conditions like directional movements (delta), days to expiry (theta), volatility (Vega). Gamma shows how erratic the price of an option is as the underlying moves around.

Even these sensitivities are only accurate in the intuitive sense because in a trending market (autocorrelation) geometric Brownian motion is not followed the black and Scholes misestimates everything.

One of the main other uses of Black and Scholes is to calculate what the volatility would have been had everyone used Black and Scholes and had the prices moved in a geometric Brownian motion. This is possible because every other parameter of Black and Scholes model is known to all market participants. All that is unknown is how much volatility does everyone expect when pricing their options. Again here we have not concerned with the numerical volatility everyone expects. We are only concerned about how everyone ranks against each other and over time in terms of future volatility they expect. This is why implied volatility rank is more important than the true volatility.


Reports of AI and automation are inflated

One of the grand prophesies of socialism is that eventually capitalism will lead to workers not being paid enough to consume, and workers taking control of the means to production and the creation of classless society. Others believe in the prophecy that automation will lead to universal basic income being needed which leads to workers getting paid to do nothing so that they can keep consuming the products of capital. Still others believe widespread acceptance of climate change and the resulting fear will lead to people ditching oil backed economy which will be made to pay for a socialist egalitarian utopia. Still others hope in a border less hemispheric common marketplace which make all people follow the path taken by the West which will lead to socialism too.

The central hope in the coming of this rapture to work free border less eco friendly paradise is very religious, self fulfilling and there are powerful people who want it to happen.

This hope in the second coming of socialism is what lies at the root of overinflated claims about automation. This is what is behind the hopes that the coming of AI is just around the corner when we will finally not have to toil anymore and that this AI will work for our pleasure so that we can consume freely without ruining the environment.

Unfortunately no matter what prophecies say, the current state of automation and AI is unprincipled and will not hasten the arrival of a work free utopia. When AI is finally realized it wouldn’t even be a genie that grants our wishes. It will be a god and much like the gods of religion its behaviour will be absurd.

God acts in mysterious ways.

The allegory hidden in the movie Downsizing


The movie is making fun of leftism. It uses allegory to get around the censorship from the Left. It will make sense if you think of:

  • Downsizing as all forms of leftism: progressivism, environmentalism, communism, globalism etc.
  • Matt Damon’s character as the naive American everyman who marvels at all progress whether good or bad.
  • Scandinavian villagers as people who are the radical left democratic socialists who believe who in many leftist utopian visions.
  • Vietnamese immigrant refugee maid as the true activist/leftist who really wants to help people without believing in any ideology/agenda. i.e. good old fashioned Charity.

Downsizing (2017) is not as this New York Times review suggested disappointing. I am sure the reviewer was expecting a movie that preaches the virtues of the Left like environmentalism and anti-capitalism. It is a modern Lilliputian tale meant to be an allegory for an unspeakable truth much like the original Gulliver’s Travels.

Spoilers follow after here.

The director used science fiction and progressive tropes to make a mockery of the progressivism without losing (((movie distribution rights))) for being anti-progressive.

The story is an allegory of the insanity to which the USA and the world are progressing through the eyes of an American Everyman who represents the American public.

The technology for downsizing comes from Scandinavia in this movie, which is rather an odd claim for a movie made in a country (USA) which invented almost every technology in your room. This refers to how progressives view Scandinavia as the source of all human progress including technological progress.

Next, we hear about how by using this new piece of technology (at a high personal cost) you are helping the environment and fighting consumerist capitalism without the needing to stop consuming. But common people finally make the choice because they can become rich overnight by needing less. Little is mentioned about how things are cheaper after downsizing because the slaves of the big world make them. This is a satirical commentary on how progressives want to be anticapitalist consumerist environmentalists living in wealth and abundance by outsourcing all production to invisible foreign slaves who pollute the external world.

Then a contrast is shown between the Vietnamese woman, whom the TV news claims, is an environmental activist but in fact is not an environmentalist at all. She was protesting a government forced eviction of her villagers, and was downsized in prison against her will and lost her leg trying to escape in a parcel box.

The naive Everyman loses his wife trying to become rich overnight by downsizing. The wife did not have the balls to undergo the lifestyle change.

Then our hero tries to date downsized single moms and realizes they are difficult like everyone else. Being progressive didn’t improve his chances with women. Nor are progressive single moms easy, good-looking and loose.

Then the everyman meets a smalltime Scandinavian smuggler cum socialite who downsized to become rich too. He smuggles small cigars made by big slaves in Serbia. At his party Everyman meets the first baby grown to become a teenager among the Small, who the socialite reveals to be having sex with all genders and animals. This again is an allegory of how the progressives are all selfish hypocrites and decadent at the core.

Then our hero everyman meets the Vietnamese environmental activist who he expected to be giving speeches and preaching environmentalism but works as a maid in the smuggler’s house and lives and tries to help her poor neighbors. The everyman also helps her neighbors because of the guilt of not being able to fix the prosthetics of her amputated leg. ( This is probably an allegory about the failed American military intervention in Vietnamese politics, and how the Vietnamese communists tried to force certain political views on its people against their will.)

Then the smugglers invite Everyman to go to Scandinavia to help with smuggling, and the Vietnamese woman joins too having been invited by, the Scandinavian inventor of downsizing, back when she lost her leg. (This is an allegory for the Scandinavian utopia – a place where progressive heroes go to after heroic deeds)

While in Scandinavian Lilliput the visitors from the USA realize the place is a cult run by the scientist who plans to take an entire village of bearded, braided Viking-looking Scandinavians underground for 8000 years so as to survive the human extinction caused by climate change.

The smuggler and the Vietnamese activist don’t want to go underground for hiding saying the cult will probably kill each other underground long before humans go extinct. The American almost goes underground but at the last minute decides to not go full progressive retard like the Scandinavian kumbaya singing progressives.

My Haskell Setup

TL;DR: I use direnv to add stack path --bin-path directories to project-specific PATH variable. I also only use Stackage LTS which has ghc-mod as part of the distribution.

  • Install Stack using: curl -sSL | sh
  • Install Atom using the .deb file they provide.
  • Install direnv using: sudo apt install direnv
  • Add the following line at the end of the ~/.bashrc file: eval "$(direnv hook bash)"
  • Run apm install language-haskell haskell-ghc-mod ide-haskell-cabal ide-haskell autocomplete-haskell ide-haskell-repl
  • Find the latest LTS Stackage distribution that has ghc-mod in it using this page. In my case it is LTS Haskell 8.24, use that for all stack installations and new projects. Without ghc-mod your development will be very slow even if you have a newer GHC compiler.
  • Use the above Stackage version to install the following compiler tools and copy them to your stack’s compiler tools directory: stack build --copy-compiler-tool --resolver lts-8.24 hlint stylish-haskell hasktags hoogle intero ghc-mod
  • Create your stack project as usual. e.g. stack new my-project --resolver lts-8.24
  • Create .envrc file in your project directory with the following content in it: export PATH=$(stack path --bin-path)
  • Run direnv allow . in your project directory so that .envrc is used.
  • Run stack test --fast --haddock-deps --file-watch and keep it running while you develop.
  • Open your project in atom, and everything should work without further changes to settings.

OOPs vs pure functional programming

The central tenet of object oriented programming is perhaps the encapsulation of shared mutable state and behavior into a single unit, the object. This is beneficial because shared mutable state is mutable and shared, and by limiting what behaviors can mutate the state and how state is shared, we make the program comprehensible.

Everybody can come up with a scheme to mutate state and share it, in a way that they themselves think they are able to understand all the implications of doing so but almost often they are wrong. There are hidden implications of having excessive mutable state listed below.

A real programmer should face mutable shared state with humility and not multiply it reveling in his own ability to understand it.

Object oriented programming does not limit the programmer from increasing mutability and sharedness of state. It merely suggests good practices called “design patterns” do suggest that programmers follow them when convenient if at all.

As a consequence we have:

  • Good practices decided by purported experts like Gang of Four and people like Martin Fowler who do not have any good reason why they are right except that they are influential. They got influential by preaching feel good practices they discovered through experience which like religion feels right. And to be fair there is some truth in good design practices much like how basic religious tenets of mainstream religions are honorable. But excessive adherence to such practices often reveal their weaknesses.
  • The entire industry plagued with hipsters who come up with one framework/paradigm every week that follow the above mentioned good practices in various ways trying to find the next great magic formula for managing complexity.
  • Abstractions that are only used in job interviews to hire programmers to maintain poorly written code which do not use any of the said abstractions.
  • Debuggers are necessary because of excessive mutable state.
  • We have to constantly run the program to know if it working. Test driven development, behavior drive development arises from this. This is called operational semantics as opposed to denotational semantics.
  • Formal verification methods involving mutable state is exceedingly complex.

Pure functional programming school of thought plans to create a brave new world order by liberating people from this mess. You have nothing to lose but your chains. 😉

  • Pure functional programming abolishes all mutable state. Mutability only exists as a syntactic sugar if at all, and a only a simulacra of mutation exists.
  • Pure functional programming abolishes all shared state.
  • As a consequence encapsulation is unnecessary and even detrimental. All we need is namespacing.
  • Pure functional programming does side effects without losing denotational semantic properties of functions.
  • Instead of relying on experts preaching good practices we rely on theoretical results which yield terseness and better denotational semantics i.e. the ability understand program behavior without running it.
  • Debuggers are rarely needed.
  • Test driven development is replaced with proof driven development and random test case generation.
  • Job interviews are about abstractions which are actually used in the code base not some nice to have design pattern postponed because of deadlines to gradually create messy code.

How more USD will create more war

USD and other IMF SDR basket currencies maintain their exchange rates despite excessive supply because there is an excess demand to match.

USD and JPY maintain their excess demand by lending out newly created currency for interest, but only the principal is created initially. And the interest is almost always never created.

The principal is used by the borrower nation to pay for infrastructure and weapons bought from the corporations of the lender nation. These corporations then park these dollars in a way that does not raise prices of common goods. They use means like bonds, and equity in other corporations and in startups to do it (this is how Snapchat fetches billions of dollars in capital).

The interest needed to pay back the original loan creates a perpetual excess demand for the lender’s currency.

The lender uses such an excess demand for their currency, combined with excess supply and the resulting cheap capital of lender’s currency to fund innovation and technology superiority in its local community.

The problem, however, happens when easy money leads to more corruption, more propaganda, unwise movements to make the world more socially-just/progressive/protestant/Catholic, and the eventual drying up of innovative ideas to tap into and create a technological dominance out of.

Once that happens in order to maintain foreign excessive demand for the lender’s currency, the lender nations will have to start selling weapons and even create wars to spend the weapons on.

The world will then go to war with each other, while the local communities of the lender nations will stop breeding thanks to divisive propaganda and unwise ideological indoctrination against sexes, races, and religions.

Corruption will do the rest, by gradually eroding trust in the State to fix problems, and create private alternatives like the Mafia instead. Private gun ownership might help stave off total destruction.

Second law prevails as usual. Without external systems to export entropy to it creates entropy within. In this case, the system is the world.

Linus’ security philosophy applied to puritanism

Linus Torvalds rebuked Linux kernel hardening efforts today for sacrificing availability/accessibility so as to achieve security. He said,

Because without users, your program is pointless, and all the development work you’ve done over decades is pointless.

To quote Steve Yegge,

Accessibility is actually more important than Security because dialing Accessibility to zero means you have no product at all, whereas dialing Security to zero can still get you a reasonably successful product such as the PlayStation Network.

Religious (e.g. fundamentalists), political (e.g. Soviet system) and secular (e.g. social justice activism) puritanism often ends up making normal life impossible in the name of greater purity. So to paraphrase Linus:

Without followers, your ideology is pointless, and the revolution you’ve had over the decades is pointless.