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Wow, the work he did on simulating his payout is almost exactly what I used to have people do as part of our interviewing. IMHO It was one of the most telling

Wow, the work he did on simulating his payout is almost exactly what I used to have people do as part of our interviewing. IMHO It was one of the most telling tests I could give a potential trader, not necessarily for quants as this should be considered the quant equivalent of fizzbuzz. Victor Haghani of Long Term Capital Mangement fame, yep those guys, did a similar experiment with bet sizing and betting on a loaded coin and sadly even people who should have known better, math majors, didn't fare very well in his experiment. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2856963 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2856963

typon 9y ago
I looked up the first author on Wikipedia: > Victor Haghani (born c. 1962[1]) is an Iranian-American financier,[2] one of the founding partners of Long Term Capital Management (LTCM), a hedge fund which collapsed in 1998 and was eventually bailed out by a consortium of leading banks.
21 9y ago
Taleb has a lot of disdain for the LTCM guys: "Mr Taleb argues convincingly that the spectacular collapse in 1998 of Long-Term Capital Management was caused by the inability of the hedge fund's managers to see a world that lay outside their flawed models. And yet those models are still widely used today." "By many’s reckoning, LTCM both defined and emboldened Nassim Taleb. The episode was a microcosm of everything he eventually stood for and against. His resentment against economists grew. He became convinced that they totally do not understand risk. He saw the fragility of the financial system and how dependent the entire ecosystem is on one another. He became disgusted when LTCM fund managers, despite the damage they have done, walked away from the fiasco relatively unscathed and went on to start more funds. He became the biggest advocate of having Skin in the Game."
- tptacek 9y ago
  Disdain for LTCM isn't exactly an iconoclastic, or even interesting, position to take. They're among the worst trading catastrophes in history. A good book has been written about LTCM, but it's not Taleb's; it's Lowenstein's _When Genius Failed_.
  - pdog 9y ago
    > Disdain for LTCM isn't exactly an iconoclastic, or even interesting, position to take. How many people took that position before it blew up?
    - tptacek 9y ago
      Famously, Taleb is supposed to have predicted LTCM. I've read FBR and Swan, but not recently, and took a couple minutes to try to track down the details of this prediction, with little luck. I found numerous references to his having predicted the demise of hedge funds "like" LTCM (my clock will also strike 4:23 at least twice in the next 24 hours). Does anyone have a good cite for this?
      - defen 9y ago
        I'm not sure he called them out by name. If you read `Against VAR` [1] from 1997 (LTCM blew up in 1998) you see basically all the ideas of The Black Swan / Fooled By Randomness. LTCM was doing all the things that he says are risky. The guy who wrote "In Defense of VAR" on that same page subsequently wrote "Risk Management Lessons from Long-Term Capital Management"[2]. Also in Taleb's 1997 book "Dynamic Hedging", chapter 9 "Vega and the Volatility Surface" talks about liquidity as one of the pre-eminent risks of an option book (as opposed to individual option positions). [1] http://www.derivativesstrategy.com/magazine/archive/1997/0497fea2.asp http://www.derivativesstrategy.com/magazine/archive/1997/049... [2] https://merage.uci.edu/~jorion/papers/ltcm.pdf https://merage.uci.edu/~jorion/papers/ltcm.pdf

typon 9y ago

I looked up the first author on Wikipedia: > Victor Haghani (born c. 1962[1]) is an Iranian-American financier,[2] one of the founding partners of Long Term Capital Management (LTCM), a hedge fund which collapsed in 1998 and was eventually bailed out by a consortium of leading banks.

21 9y ago

Taleb has a lot of disdain for the LTCM guys: "Mr Taleb argues convincingly that the spectacular collapse in 1998 of Long-Term Capital Management was caused by the inability of the hedge fund's managers to see a world that lay outside their flawed models. And yet those models are still widely used today." "By many’s reckoning, LTCM both defined and emboldened Nassim Taleb. The episode was a microcosm of everything he eventually stood for and against. His resentment against economists grew. He became convinced that they totally do not understand risk. He saw the fragility of the financial system and how dependent the entire ecosystem is on one another. He became disgusted when LTCM fund managers, despite the damage they have done, walked away from the fiasco relatively unscathed and went on to start more funds. He became the biggest advocate of having Skin in the Game."

tptacek 9y ago
Disdain for LTCM isn't exactly an iconoclastic, or even interesting, position to take. They're among the worst trading catastrophes in history. A good book has been written about LTCM, but it's not Taleb's; it's Lowenstein's _When Genius Failed_.
- pdog 9y ago
  > Disdain for LTCM isn't exactly an iconoclastic, or even interesting, position to take. How many people took that position before it blew up?
  - tptacek 9y ago
    Famously, Taleb is supposed to have predicted LTCM. I've read FBR and Swan, but not recently, and took a couple minutes to try to track down the details of this prediction, with little luck. I found numerous references to his having predicted the demise of hedge funds "like" LTCM (my clock will also strike 4:23 at least twice in the next 24 hours). Does anyone have a good cite for this?
    - defen 9y ago
      I'm not sure he called them out by name. If you read `Against VAR` [1] from 1997 (LTCM blew up in 1998) you see basically all the ideas of The Black Swan / Fooled By Randomness. LTCM was doing all the things that he says are risky. The guy who wrote "In Defense of VAR" on that same page subsequently wrote "Risk Management Lessons from Long-Term Capital Management"[2]. Also in Taleb's 1997 book "Dynamic Hedging", chapter 9 "Vega and the Volatility Surface" talks about liquidity as one of the pre-eminent risks of an option book (as opposed to individual option positions). [1] http://www.derivativesstrategy.com/magazine/archive/1997/0497fea2.asp http://www.derivativesstrategy.com/magazine/archive/1997/049... [2] https://merage.uci.edu/~jorion/papers/ltcm.pdf https://merage.uci.edu/~jorion/papers/ltcm.pdf