RE: fuzzy finance


Subject: RE: fuzzy finance
From: Philip E. Bennett (etcinc@sympatico.ca)
Date: Fri Mar 03 2000 - 19:03:24 MET


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?

Regards,
Phil Bennett

-----Original Message-----
From: owner-nafips-l@sphinx.Gsu.EDU
[mailto:owner-nafips-l@sphinx.Gsu.EDU]On Behalf Of Paul Victor Birke
Sent: Friday, March 03, 2000 11:56 AM
To: nafips-l@sphinx.Gsu.EDU
Subject: Re: fuzzy finance

Will Dwinnell wrote:
>>snippings<<
>
> I was just thinking that, in the end, a buyer pays only a single price.
Certainly,
> before the transaction, available information may allow us to infer some
distribution of
> price values, but both probability and fuzzy logic deal in distributions.
Once the
> transaction has occurred, however, the price is known, which makes this
seem more like a
> probability issue to me.
*************************************
Dear Will

Well, while there is only one finite price at a given time, there could
have been >>others<< ! Prices that would have been acceptable to both
the seller and the purchaser. You can really never know precisly; you
would have to run a number of purchase scenarios in some kind of
simulation to locate them. But there will exist a sort of small uniform
range which would satisfy both seller and buyer. Hence fuzzy.

Like when you purchase a Snickers Bar. Within a certain range you just
don't care. A little higher, you might say well that was a high price
and might hesitate a little before buying. If you see a low price, you
feel you got a bargain. But between these posts, there is sort of a
neutral response, in this uniform range. What others have called an
>>informationless state<<. The trick is to find this range when pricing or
buying.

Paul

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