Re: fuzzy finance


Subject: Re: fuzzy finance
From: Paul Victor Birke (nonlinear@home.com)
Date: Fri Mar 03 2000 - 23:39:50 MET


"Philip E. Bennett" wrote:
>
> Paul, et al
>
> I've been monitoring this thread with muted interest. The discussion has
> bounced around and touched on many topics but the main interest seems to be
> in fuzzy vs probabilistic methods and their application to financial
> modelling/trading.
>
> As a private trader, former institutional derivatives trader, and a bit of a
> financial engineer I am concerned only with how well these techniques work
> to help me create workable models. I define a workable model has one that
> provides information so as to reduce the uncertainty regarding the
> interpration of a specific situation or the course of action to take. In
> this regard, IMHO, possibilistic (i.e. fuzzy logic) and probabilistic (i.e.
> neural nets, datamining, etc.) methods are complementary and HIGHLY
> synergistic! The use of GA's and SOM's to help fine tune the application of
> these methods are also benefical.
>
> Would it be appropriate to suggest that if you're interested in gaining more
> success in modelling you focus more on what can be gained from by using the
> methods together?
**********************
Dear Philip

Well in fact that is what I had done at the time back in about 1996.
While I appear to be a bit one sided in fact I am not so.

I would agree with you fully here. There a loads of insights to be
obtain be sticking to formal Probability Theory and its offshoots. The
University of Guelph library has a number of books on subjective
probability assessment of uncertain prediction that derived in part from
the Cold War as just a for instance. I was most interested modelling
uncertainty in the marketplace. I became interested in the idea of
using or borrowing from Fuzzy Set Theory the UltraFuzzy Function. You
can roam around the UltraFuzzy using a Geometric Mean definition between
the lower and upper bounds. These bounds can also be interpreted as
probability limits.

So as an engineer Steal With Pride anywhere I can get ideas to obtain
some advantage. I am not stuck in the ground fuzzy person. I try to
use each where advantage.

In discussing this problem at work today I was reminded that Fuzzy has
shown advantage in Control Applications wherein a loop or control loop
is the key idea here. I will pass this along to Peter Hamer in a few
minutes. Probability Theory seems lacking in the control context. And
maybe why is failed should be highlighted.

all for now,

Paul

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