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2013

Z/Yen Group Limited

90 Basinghall Street

London EC2V 5AY

tel: +44 (20) 7562-9562

“Zest for Enlightenment”

Royal Holloway, University of London

Long Finance

Big Data Needs Big Theories

Professor Michael Mainelli

www.zyen.com

Egham, Surrey

27 January 2014

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2013

♦ Special – City of London’s leading commercial think-tank

♦ Services – projects, coaching/training, expertise on

demand, research, strategy, modern systems

♦ Sectors – technology, finance, voluntary, professional

services, outsourcing

Independent Publisher Book Awards Finance, Investment &

Economics Gold Prize 2012 for The Price of Fish

British Computer Society IT Director of the Year 2004 for

PropheZy and VizZy

DTI Smart Award 2003 for PropheZy

Sunday Times Book of the Week, Clean Business Cuisine

£1.9M Foresight Challenge Award for Financial £aboratory

visualising financial risk 1997

Z/Yen

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2013

♦ Long Finance predicting bubbles

(current)

♦ LIBOR litigation (current)

♦ Prediction markets (1998-present) –

www.extzy.com

♦ Market Intelligence – MoD, e.g.

Vision 2020, and ongoing

♦ Avatars for Big Data (2010-2012)

♦ PropheZy and VizZy – Automation

of Compliance monitoring (2005-

2008)

♦ Financial £aboratory Club

visualising risk (1997-1998)

Z/Yen in Finance

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2013

SVM Developers

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2013

LIBOR

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2013

Surfeit of Wicked Problems

[source: Dr Tim Morgan, Dangerous Exponentials, Tullett Prebon (June 2010)]

“The biggest shortcoming of the human race is our inability to

understand the exponential function.” Professor Al Bartlett, University of Colorado

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2013

2,000,000 Years of Commerce and We

Still Don’t Know The Price Of Fish

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2013

Great Debates

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2013

♦ Not a physical modelling problem, so the

speed of the environment is the speed of

the substrate

♦ Regulation is monitoring the system’s

performance, not part of the system – tools

such as ‘optimal leverage’ worth

considering

♦ Large degrees of regulatory freedom

needed – Ashby’s Law of Requisite Variety

Big Data Is Too Small

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2013

Big Theories

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2013

Judge Voltaire

« Il est encore plus facile de juger de l'esprit d'un

homme par ses questions que par ses réponses. »

“It is easier to judge the mind of a man by his

questions rather than his answers”

Pierre-Marc-Gaston, duc de Lévis (1764-1830),

Maximes et réflexions sur différents sujets de morale et de politique (Paris, 1808):

Maxim xvii.

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2013

Impertinent Questions

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2013

London

Accord

Financial

Centre

Futures

Meta-

Commerce

Eternal

Coin

About

‘When would we know our

financial system is

working?’

Objectives:

Expand Frontiers

Change Systems

Deliver Services

Build Communities

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2013

Long Finance – London Accord

♦ Founded 2005

♦ Long Finance’s ESG

‘sustainable finance’

programme

♦ Over 60 contributors of over

400 ESG reports

♦ Tomorrow’s Cities 2014

initiative

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2013

Financial Centre Futures

15

Communities

Washington Consensus

Virtual rules Geography matters

Long Hand Many Hands

Second Hand Visible Hand

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2013

Systemic Scrunch Meta-Commerce

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2013

Self-referential system

upon which all our

analysis is based:

♦ What does GDP mean?

♦ Are competing

currencies good or bad?

♦ Should money be a long

term store of value?

The Eternal Coin

[Source: http://illusionsetc.blogspot.com/2005/08/moving-mobius-strip.html]

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2013

Long Finance Publications

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2013

Film Interlude

www.ultrahedge.com

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2013

What’s All This Got To Do With The

Price of Tea In China?

[source: http://www.xabusiness.com/chinese-paintings-picture/chinese-brush-paintings/2/br-0694b.jpg]

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2013

♦ Irreversible Time

♦ Confidence Accounting

♦ Unburnable Carbon

♦ Policy Performance Bonds

♦ Open Data

♦ Standards Markets

♦ Asymmetric Gain & Loss Recognition

♦ Pension Internal Growth Rates and

Indemnity Assurance

♦ Insured Utility Banking

♦ Taxation Reform

♦ Uses & Abuses Of Discount Rates

♦ Cyber Reinsurance

♦ IP Options Markets, R&D Lotteries

♦ New Monetary Systems – UK WIR...

Mechanisms or Faiths?

“Get a detailed grip on the big picture.”

Chao Kli Ning

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2013

Irreversible Time - 300 Year Old Hole

[Source: Towers Watson:

http://www.towerswatson.com/en/Insights/IC-Types/Ad-hoc-Point-of-View/2012/time-is-irreversible-or-why-you-should-not-listen-to-financial-economics

& Peters, Ole (2011), “The Time Resolution of the St. Petersburg Paradox,” Philosophical Transactions of the Royal Society (2011) 369, 4913-4931]

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2013

Confidence Accounting – Scientific Measurement

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2013

Unburnable Carbon

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2013

Policy Performance Bonds

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2013

0

20

40

60

80

100

120

0 5 10 15 20 25 30 35 40 45

Val

ue

Time (years)

Mark to Market and Discount Rate Valuations

Contribution Pension IGR Asset-MtM Liability (Gilt)

Pensions – Internal Growth Rate

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2013

Is Measurement Everything?

“Companies should seek to disengage from the

process of managing short term earnings expectations”

‘Long’ is not just another four letter adjective for ‘good’

Most theorists believe strongly that the first step towards

governance, control and management, whether scientific

or commercial or political, is measurement.

We repeatedly find that not measuring people leads to

low standards, slack practices and corruption

If we adopt ‘long’ does that mean we need to drop

‘measurement’?

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2013

♦ Need to know “how to talk to the market” –

Dr Doolittle, e.g. oil price moves post 9/11 or

aluminium and Murabaha today

♦ Need ways of eliciting unstructured

information – narrative analysis

♦ Need ways of storing unstructured

information – tagging

“querying and structuring risk rich responses”

Regulation & Radical Uncertainty

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2013

“If you can write the specification,

you haven’t understood the problem.”

♦ Delicious, Pinboard,

Diigo

♦ Bookie

♦ DrupMarks, GetBoo,

Sabros.us,

SemanticScuttle,

Shaarli

♦ Unexus (launching)

♦ Fluid Info, Fusion-

experience

♦ tagclouds

♦ taxonomies and

taxonomy markets

♦ prediction markets

♦ text analysis

software

♦ BT Saturn, Partiview,

Quid, Palantir

♦ heatmaps

♦ cartograms

♦ network labelling

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2013

Defense (sic) Against the Dark Arts

SOLUTION

PROBLEM

You know

You don’t know

Known

Knowns

Unknown

Unknowns

Unknown

Knowns

Known

Unknowns

You know You don’t know

How to change behaviour?

Who’s driving the market?

Capital base returns

Velocity & quantity of money

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2013

♦ New technologies

♦ New models

♦ New measures

♦ … then Big Data

Science & Long Finance

“Get a big picture grip on the details.”

Chao Kli Ning

© Z/Yen Group 2010

© Z/Yen Group

2013

When Would We Know

Our Commerce Is Working?

♦ When we’re equitable - space?

♦ When we’re sustainable - time?

♦ When we’re happy?