Re: fuzzy finance -- NYSE "market making"


Subject: Re: fuzzy finance -- NYSE "market making"
From: Paul Victor Birke (nonlinear@home.com)
Date: Wed Mar 08 2000 - 23:40:29 MET


Doug Elias wrote:
>
> G'day ...
>
> I had the pleasure of watching a video produced by NYSE that followed
> a pair of market-makers around while deals on the stocks they
> represented were being explored, the process they call "price
> discovery". One of the significant issues involved in this process is
> that of "how much information does the floor-rep make available to the
> other parties, and at what point in the discovery process?" One of
> the floor governors commented that an important factor in determining
> how much information is presented by one side is how well known the
> other rep is -- the more well-known *and trusted*, the more likely
> that a larger amount of information will be revealed. This is
> inherently fuzzy in nature, not probabilistic.
>
> Watching a trade being explored, it is immediately obvious that
> "probabilities", by their strict definition, have no role to play in
> the process -- the reps themselves talk about "gaining an intuitive
> feel", "learning how to gauge the market's reaction", and the like.
> It's very clear that the kind of uncertainty that is prevalent in this
> particular part of the financial world is most decidely not
> realistically modelled by a probability distribution, at least not
> while the process is active. And the curbs that have had to be
> imposed on arbitrage engines, which at their heart are probabilistic
> in nature, also indicate that this is not a methodology well-suited to
> the domain.
**************************

Dear Doug

Nothing like getting actual information >>from the trenches<<, so to
say.
Driving up the membership curve. Feelings and trying to quantify the
uncertainty. Trying to reduce the uncertainty. Trying to bracket the
uncertainty like the Rough Set idea.

Clearly more fuzzy than probabilistic in inherent nature.

Thanks for the insights,

Paul

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