Everyone should go out and read Pablo Triana’s new book, “Lecturing Birds on Flying: Can Mathematical Theories Destroy the Financial Markets?“. And I’m not just saying that because I’m quoted in it.
Okay, I am just saying that because I’m quoted in it. But - I’m quoted in it! The quote comes early on, on page 9, and it’s a paragraph from a blog post I wrote two years ago, in a review of Nassim Taleb’s “The Black Swan“, which also contained some thoughts about my old website, Betocracy, plus prediction markets and the “wisdom of crowds” theory. Dr. Taleb linked the blog post soon after I wrote it, on a page on his website that now appears to have been removed. That’s almost certainly where Triana read the post from, since he’s a devoted follower of Taleb’s.
I bought the book and read it, and it’s interesting - it’s an ode, in the manner of Taleb’s “The Black Swan” and “Fooled By Randomness”, to common sense in finance and a deep skepticism of “experts” who claim to have mastered the markets. Triana has the advantage of writing post-financial-crash, when the idea that the large banks were playing a con game has become standard opinion, right or wrong. He argues for it forcefully, with a focus on financial math, stating that mathematical formulations like the Black-Scholes formula and the concept of “value at risk” (VaR) are flawed and have provided cover for brazen financial gambles. More interestingly, he argues that Black-Scholes, though it’s taught as a basic rule of finance, is never actually used in the banking world; instead, traders make intuitive purchasing decisions that they then justify as some “fudge factor” on top of the supposedly set-in-stone Black-Scholes, using concepts like the “volatility smile”.
Anyway, you should all read it.
Interestingly, I found out about the book when I was called several months ago by the guy who recorded the audio version, to find out how to pronounce my name; among the stranger phone conversations I’ve had. And I guess this now means a bunch of people have now heard my name as well; you can buy the audio version here, by the way, all 16 hours of it.