Nifty – More on Calibration


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Sobol Sequences


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Capital Protected Notes


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AutoCallables – FAQ's

AutoCallable Pricer

It is not very accurate coz I can’t increase the grid size too much, as i don’t own a _SUPERCOMPUTER_. So this has prompted me to develop some pricing framework in R package. This is just for testing purpose. Feedback Appreciated!

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Volatility Calibration


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Volatility Calibration


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MBA

I agree this was a quants blog, and this article will quadtriple the number of people who hate me. Even my closest friends won’t agree with me, and most will think of ways to trash it. With those credits out of the way let me share my viewpoints.

In all this – I am not talking about entrepreneurs, and they are very much or totally different from CEO’s (or so called product of IIM’s). An entrepreneur puts his own money at risk and fights aggressively for his decisions. A CEO is just taking decisions using shareholders money. If he is right he is rewarded, if he is wrong – Who cares?

Let’s step back into Historical Pages. 

Superglue or Krazy Glue is a substance called cyanoacrylate that was discovered by Dr. Harry Coover while working for Kodak Research Laboratories to develop an optically clear plastic for gunsights in 1942. Coover rejected cyanoacrylate because it was too sticky. In 1951, cyanoacrylate was rediscovered by Coover and Dr Fred Joyner. Coover was now supervising research at the Eastman Company in Tennessee. Coover and Joyner were researching a heat-resistant acrylate polymer for jet canopies when Joyner spread a film of ethyl cyanoacrylate between refractometer prisms and discovered that the prisms were glued together.

Air Conditioning – In 1902, only one year after Willis Haviland Carrier graduated from Cornell University with a Masters in Engineering, the first air (temperature and humidity) conditioning was in operation, making one Brooklyn printing plant owner very happy. Fluctuations in heat and humidity in his plant had caused the dimensions of the printing paper to keep altering slightly, enough to ensure a misalignment of the colored inks. The new air conditioning machine created a stable environment and aligned four-color printing became possible. All thanks to the new employee at the Buffalo Forge Company, who started on a salary of only $10.00 per week.

Apple Computer – The first home computer with a GUI or graphical user interface was the Apple Lisa. The very first graphical user interface was developed by the Xerox Corporation at their Palo Alto Research Center (PARC) in the 1970s. Steve Jobs, visited PARC in 1979 (after buying Xerox stock) and was impressed and influenced by the Xerox Alto, the first computer ever with a graphical user interface. Jobs designed the new Apple Lisa based on the technology he saw at Xerox. The managers at Xerox didn’t understand the technology, and hence they gave it all away to Steve Jobs. At least it went to someone who knew how to use it. If there was no Steve Jobs, the project would have been quashed and we would be using “Surprise Surprise”. – COMPUTERS THAT FUNCTION LIKE TYPEWRITERS. Only after Apple’s GUI came, we had microsoft and other organizations copying this. So it’s like saying if it were for those lucky managers we would be in stone age of computers. Btw..Does Steve jobs have an MBA? NO! Ok that’s a bit sarcastic.

In 1905, Einstein developed the Special Theory of Relativity. As a child, Einstein had asked himself what would a beam of light look like if you caught up with it? From this simple question came a profound answer:

Larry Ellison once said “Now that you have an M.B.A., you will never be as successful as me!

None of the above had an MBA. Although that’s not a reason to say “Hey 4 out of a gazzillion people were not MBA’s…so what, I am different”. My only questions is why pay more to managers rather than creators or innovators? No need to answer right now, but let’s consider in more detail

Here are some reasons that CIO magazine gives on MBA degree

1. An MBA is your ticket to the inner circle.

2. It teaches you to think like a business person.

3. It gives you credibility with your business peers.

4. An MBA can give you an opportunity to deepen your technical expertise. – (I do not agree to this statement)

5. You can apply business school classwork to your day job.

6. You’ll learn standard tools for organizing business activity and managing business processes.

7. Polish you communication and writing skills.

All in all an MBA is your entry into a branded world. Of course many people won’t agree that branding leads to preference of symbol over substance coz a logical mind will say, ” I tried the product and since it was good, hence my likeness for the brand “. It’s perfectly all right to come to this conclusion.

Initially when any company starts it’s core business or the main goal is always product development, but is it nowdays? As Tom Peters (corporate guru) once said “You are a damn FOOL if you own it!”. “Fast Food Nation” is one of the best examples of 100% management and no responsibility. It easy to slip into the domain of supply chain / cost cutting and million of those wonderful words that your peers can understood. For example consider an LG CD Drive, where they are made? They are actually made in those countries where most people won’t have even used a computer. A management graduate might justify this by saying “This is COST-CUTTING”. If you can’t see the problem with this argument, clearly you are an MBA. It is easily justified by an MBA that this has lead to bigger size of companies, but has it prevented small companies – Yes. Netscape was brought down by Microsoft. How? Windows might be used by millions of people, but the actual computing / research still happens on Linux. So is a managed product Windows better than Linux? Answer is NO. It never can be.

You might reason that for some products management does help. Like for example Coffee, Starbucks comes to mind. But are we selling the coffee or are we selling the brand. Coffee might be very cheap but cost of brand makes it costlier that now it has become a luxury. Is it justified? Again an MBA will say YES! Keep reading….

Think about this – Generally in an IT company a manager gets paid more than a developer. All the developers will agree and all the managers will come out with a set of points why this is right.

Everyone wants to “manage” but the economy needs people who create new products and services in order for the economy to grow. An IIM graduate easily gets a top post in a company (maybe after a few years), and as you have the degree or as your qualifications increase less are the chances of questions asked in the interview. Again simple statistics says that if there are 1000 average people, then there is a very likely chance that 50% of them got success just by chance. Again there are logical reasons to justify “Hard Work, Logical Analysis”. But if MBA is about logical analysis why don’t they hire Mathematicians? They are excellent in Logic. Can an MBA beat a mathematician in Logic? Million times NO.

In banks they ask you quick logical questions which might have an answer in 1/2 minutes. A dice puzzle might be simply which requires lateral thinking but what about deep thinking. Only an engineer can think of this “Consider 100 dices tossed 100 times. Find the expected value of Maximum of the Minimum? For example toss 100 dices once take a minimum each time, and for 100 tosses take a maximum of all this minimum set. What is the expected value of this maximum?”

This requires logic and deep thinking. The average engineers who end up doing MBA, might easily reason – My job is management and this is not a 2 minute problem. One of the top companies which hires MBA is McKinsey.

A perfect example is Enron, which depended on McKinsey – A company everyone has heard about. They had this term – “Thinking outside the Box”, and nobody realized that if every one is thinking outside the box then there is something wrong with the BOX. End result – Enron is gone, but McKinsey still continues. This is the best part any management firm made up of MBA’s is not responsible, coz they didn’t design something tangible. They were merely putting up their opinions and who cares if it all fell down. This brings me to a wonderful incident.

A CEO from a financial organization once said to me (Exact Words Quoted) “Nobody cares a shit about Mathematics”. It’s clearly evident that too much management can result in highly inflated ego’s. Or in other words thinking that “I know too much”. Its good to have an ego if you have created something, but not if you are just managing people. If your company is working well it’s the employees who are 90% responsible for your success. Linus might have a big ego, but he made Linux. For those who haven’t heard about Linux, let’s move on. It’s too late to learn, coz you already know everything.

If Larry ellison displays ego it’s understandable he has something to back it up.

An excellent speech – http://www.managementparadise.com/forums/articles/15626-speech-delivered-larry-ellison-ceo-oracle.html

In computer software what is the best invention from a managed organization? There is NONE. Why Google hires more Phd’s than MBA’s. Does it visit IIM Campus? Google search was not designed by an MBA or in a managed environment. Of course people will contradict or raise a point that it requires management to control such a big organization. I agree, but not at the cost they you negate the developers or people actually making the product.

Another example is BNY Mellon, which has this culture of making lots of spreadsheets and plans on paper. It is a secondary concern that plans are executed or not, but they should look good to managers. One of the excellent rules is that managers are given BlackBerry’s. Now as per rule you are not allowed to carry a camera phone into the organization due to security reasons, but does BlackBerry have a camera. Oh really it DOES! Who makes these rules – Again the wonderful Management.

Has any MBA till date invented something? Has he/she produced anything tangible? No apple producing an Ipod is not an example, coz Apple runs very much differently from management firms. An example might be Microsoft, which by it’s management strategies produced crap softwares which programmers tend to hate. If you think they produce excellent product think about this – What product has a next update which fixes 30,000 bugs! Either the code was faulty or they released faulty code. Yes this was Windows Vista. 

At least some people will agree “Managers assign best engineers to COST REDUCTION, rather than innovation”. Is Nike making shoes or new strategies of cost reduction. The plain fact of the matter is “INNVOATION never ever works in restricted / managed ENVIRONMENT”.

For example consider this

“Hey Albert I want that theory of relativity you had been working on complete by End of Day, otherwise stop working on it and do something else”.

Or

“Hey, are you still working on that design of rubicks cube, it was supposed to be completed weeks back”

Again this is too much sarcasm but I just wanted to highlight just one basic difference – To create things you don’t need MANAGEMENT.

MBA programs continue like weeds to grab tuition money from students who are taught excellent subjects “Leadership”, “Diversity” and well they should add a third “Money Counting”. Coz that’s what most people are thinking when doing the course.

IIT is considered one of the best engineering institution in my country. I respect those people who graduated from this prestigious college. One of my good friends had done a course in BioTechnology. Their group was doing research and had the option of continuing this in Germany. In the final year Lehman Brother comes along, promises a high pay and the best brain in one of the best institutes in India is brainwashed into going for a WallStreet bank. What does a bank produce? Money, and thus simple equation is Input -> People, Output -> Money and no side products.

MBA -> Input -> People, Output -> Money. We are targeting bonuses of Wall Street and big banks, but isin’t MBA the same thing? Of course the money is different, but why shouldn’t engineers deserve a higher pay? Simple answer is that it can never be. Why?

Who decides the pay in any organization – Manager + HR – Both come from management background. It’s 2 – 0 voting scale, hence it’s a no brainer question. Think of all those sheets you fill for your appraisal – A time that could have been spent in doing something new.

On a parting note – the GDP numbers (Note the financial sector). Sadly it’s a bad picture.

Sector GDP Contribution
Agriculture, Forestry & Fishing 876563 21.7358%
Mining and Quarrying 129671 3.2154%
Manufacturing 799513 19.8252%
Construction 437768 10.8552%
Hotel, Transport, Communication & Trade 1274534 31.6042%
Real Estate, Insurance, Financing, & Bus Service 700943 17.3810%
Social, Personal & Community, Services 690373 17.1189%

Here’s an excerpt I read about the role of a manager. With highly inflated ego’s produced by IIM each year I think this has easily been forgotten. “Taken from Linus Torvalds”

Since your main responsibility seems to be to take the blame for other
peoples mistakes, and make it painfully obvious to everybody else that
you’re incompetent, the obvious question becomes one of why do it in the
first place?

First off, while you may or may not get screaming teenage girls (or boys, let’s not be judgmental or sexist here) knocking on your dressing room door, you _will_ get an immense feeling of personal accomplishment for being “in charge”. Never mind the fact that you’re really leading by trying to keep up with everybody else and running after them as fastas you can. Everybody will still think you’re the person in charge. It’s a great job if you can hack it.

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www.quantanalysis.in – Moved

www.quantanalysis.in/papers

Main Website

www.quantanalysis.in

It contains pricing tools in Grid Framework. It has a stochastic volatility pricer where you can choose the model parameters. Unlike other sites which generally use ‘Haug’ coded formulas, I have created some pricers using Finite Difference Grids.

A simple solution of Fokker Plank equation is also provided. The grid becomes unstable if you choose weird parameters. You won’t notice a page refresh when clicking any “Pricing” button on the site (Yeah it’s MAGIC!). It’s similar to Google Suggest technology.

For any suggestions / ideas / hatemail  ==> my new email id is animeshsaxena<at>quantanalysis.in

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Questions


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Hello world!

Welcome to WordPress.com. After you read this, you should delete and write your own post, with a new title above. Or hit Add New on the left (of the admin dashboard) to start a fresh post.

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