Northern Rock is back in the press. The EU commission has given the green light to restructure Northern Rock and remove the impaired assets from its balance sheet. This is window dressing: if impaired assets are marked to market and losses are realized, then the assets are on par with all the other assets. They then have a fair chance to perform better or worse than the other assets. If losses are realized, there is no good or bad bank and a combined bank is just as good as two separate banks.
The regulators should focus on the real issues:
Credit agreements, loans, etc. are highly complex legal agreements. The in-transparency of 200 page legal contracts does not gibe as well with quantitative modeling as we would expect it to in the 21st century. We need a computer language to code legal agreements. Read the rest of this entry »
October 29th, 2009 |
General, News | No Comments »
Analyzing tick data of currency markets we have discovered 12 new scaling laws in the foreign exchange markets that complement the two scaling laws that we uncovered in the 90s. A scaling law exists when two quantities maintain the same proportions over a certain range. For the scaling laws that we have discovered the range of proportionality is big, a factor of 1000, from the purely intraday domain to inter-day and longer. Scaling laws play an increasingly important role in natural sciences from biology to physics and complex systems for the calibration of models. In economics, this has so far not happened. I believe that this could change in view of the many new scaling laws. Read the rest of this entry »
October 27th, 2009 |
High frequency finance, News | No Comments »
The pressure is increasing in the currency markets as the USD approaches new lows. The central banks with strong currencies, such as Australia, Canada and Europe, will have to decide whether or not to adopt the policy of the SNB and intervene to weaken the EURO.
The SNB has intervened for the past 6 months and has temporarily blocked the Swiss Franc from appreciating. The cost of doing so is, however, higher than most people appreciate. There are more and more traders, who are shorting the CHF and rely on the SNB to intervene in the market. The SNB interventions have the effect of subsidizing these speculators and are becoming increasingly costly. Read the rest of this entry »
October 27th, 2009 |
Market, News | 2 Comments »
In the late 80s, we at Olsen coined the term high frequency finance to describe our scientific approach to finance and economics. We later published a book, Introduction to High Frequency Finance, that describes the new field. High frequency finance firstly deals with collecting as much information as possible; in particular storing all tick by tick market data, then in a second step studying the detailed statistical properties of the data; describing the economic processes and later based on these observations develop models to explain the observed phenomena. In biology, this approach has a long tradition. Biologists in the field of systematics have literally for centuries specialized in carefully describing the plants and only after completing this step have they moved on to introduce a systematic approach to categorize the species. Read the rest of this entry »
October 7th, 2009 |
High frequency finance, News | No Comments »
Paul Krugman argued in a recent article in the New York Times Magazine that the economics profession failed, because economists mistook beauty, clad in impressive looking mathematics, for truth. Economists developed fancy equations, because they were in love with the vision that capitalism was a perfect or nearly perfect system. Krugman did not claim to know, where economists should go from here, but it seemed certain to him that economists have to live with the messiness of economics and incorporate the realities of finance into macroeconomics. Read the rest of this entry »
September 24th, 2009 |
High frequency finance, News | Tags: Economics, financial markets, fractal theory, High frequency finance | 1 Comment »
We define a methodology to quantify market activity on a 24 hour basis by defining a scale, the so-called scale of market quakes (SMQ). The SMQ is designed within a framework where we analyse the dynamics of excess price moves from one directional change of price to the next. We use the SMQ to quantify the FX market and evaluate the performance of the proposed methodology at major news announcements. The evolution of SMQ magnitudes from 2003 to 2009 is analysed across major currency pairs…
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Author: Richard B. Olsen, Founder and CEO of Olsen Ltd
September 9th, 2009 |
General, News | No Comments »
In recent months, stock exchanges have come into the public spotlight for their business practices. The introduction of flash orders that give preferential treatment to a certain group of customers has undermined public confidence in stock exchanges as institutions that vouch for fair market prices. The introduction of flash orders happened in the wake of a development that has received little publicity. There is a growing scientific literature in finance that explains how market prices depend on the details of the order flow and how traders can influence market prices. An increasing number of market participants take advantage of these discoveries for their own and their investors’ advantage…
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Author: Richard B. Olsen, Founder and CEO of Olsen Ltd
September 3rd, 2009 |
Economics, News | No Comments »
Modern society is divided. On the one hand people have access to advanced technologies in medicine, computers, Internet communication and mobile phones. We make telephone calls around the world from one remote place and frequently do things that appear miraculous. On the other hand, many face abject poverty; one half of the world population subsists on an income of less than USD 2.50 a day as measured in 2005, see World Bank Development Indicators 2008. This is not all; there are other negative factors, such as profligate use of non-renewable resources, large loss of biodiversity, pollution of the atmosphere, and chronic armed conflict and suppression of human rights in many different areas of the world. There is a mismatch: We need to redress the imbalance between technological prowess and poverty and bring the global economy into sync with the environment…
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By: Richard B. Olsen, Founder and CEO of Olsen Ltd
August 11th, 2009 |
Economics, News | 2 Comments »
Today, we use technologies on a regular basis that only 20 years ago appeared impossible. If you had told anyone in the 1970s that today’s world would boast an installed base of more than 1 billion of personal computers, this would have been viewed as utopia. Or who predicted ten years ago that mobile phones would exceed 3.5 billion by 2008? For that matter, nobody expected that Moore’s law of doubling of computing speed every two years stipulated in 1964 would still hold true in 2009?
In technology, we have been able to exceed our wildest expectations, so why not try to achieve the same in social issues? The contributions to the economics section of the blog will span a wide range of areas that are critical for such an endeavor…
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By: Richard B. Olsen, Founder and CEO of Olsen Ltd
August 11th, 2009 |
Economics, News | No Comments »
Olsen Ltd recently launched the website www.OlsenScale.com as the first product of Olsen’s Information System with predictive information of the world economy and the financial markets that Olsen is building. The service is intended to provide decision support for investors; both institutional and private, to treasurers, risk managers, central bankers and government representatives. Its output is to be generated by processing byte by byte of data on economic activity, buy and sale flows on the financial markets and news events. The added value of the service is its systematic compilation and analysis of the abundance of data that is spewed out by the global economy. The service is based on the models of high frequency finance that analyze the complex feedback processes in the economy impacting the occurrence and outcome of future events. The Scale of Market Quakes (SMQ) measures price displacement on a tick-by-tick basis over a 2 hour time frame, thus quantifying the impact of political and economic events and other events, such as large orders; cascades of liquidations; and ubiquitous unbalances between buyers and sellers…
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By: Richard B. Olsen, Founder and CEO of Olsen Ltd
May 28th, 2009 |
News | No Comments »
