Quantifold

Finally on campus at King’s College London!

Vying for the title of most dramatically named branch of mathematics, Catastrophe theory is the study of dynamical systems which exhibit radical difficult-to-reverse change in response to changes in some variable. Developed largely by mathematician René Thom, catastrophic geometries in codimension less than or equal to four can be broken down into seven distinct types: fold, cusp, swallowtail, butterfly, elliptic umbilic, hyperbolic umbilic and parabolic umbilic catastrophes. Applications of this field are manyfold, particularly in physics where it can be used to explain many thermodynamical systems. In cases such as phase transitions there are very clear cases of this “catastrophic” effect as the system exhibits path dependence while it changes phase (think of the process of boiling water vs distilling steam and and how the phase diagram will look). Other fun examples in this text include many topics in laser physics, the sizes and stabilities of bee societies, the dynamics of prison riots and how alcohol affects introverts! Modelling the financial markets as dynamical systems we could easily imagine crashes and states of extreme volatility as examples of catastrophic effects on this dynamical system. I highly recommend reading up on this topic, if nothing else it makes you sound like some kind of mad scientist!

Jack Schwager’s famous “Market Wizards” is a series of interviews carried out with exceptional traders. Throughout the book we get insight into the different mindsets and strategies employed by each interviewee as they navigate through the financial markets. What brings many of these market players together? An appetite for risk, an aggressive approach to taking profits, speed of ex*****on and veteran levels of experience. Before the advent and widespread adoption of electronic trading, many pit-traders were essentially embodiments of these characteristics. So called “merc-jerks” in the Chicago Mercantile Exchange (CME) were notorious for their killer instincts and extreme aggression to rival traders as they fought (often literally) for a trade. Nowadays we have a lot less pit-trading, with the vast majority of trades being processed electronically, however the principles that guided pit traders are still just as relevant. If you have an ability to gain a statistical edge in the financial markets then to maintain that edge you need speed, timing and risk management. I highly recommend reading this book for some insights!

Risk management, equity, bet sizing, bankroll considerations, expected values of your holdings vs and opponent’s range: poker is a fantastic analogue for the thought processes that take place in the mind of a quantitative trader. That’s why “The Poker Face of Wall Street” by Aaron Brown has made its way into my reading list. Having played thousands of hands of poker both live and online I know that it has developed my ability to assess risk and make plays with a positive expected value when I am in a strong position, and it has also developed my ability to cut losses when playing with mediocre holdings. I highly recommend picking up a poker variant (hold ‘em, PLO, 7 card stud etc) and training yourself to intuitively manage your profit and loss based on inculcated game theory optimal strategy. Whether in trading, business or everyday life, this manner of thinking pays dividends as you make complex decisions under uncertainty. If we can get to 6000 followers on this account we will run a poker tournament sponsored by Quantifold, so make sure you follow and share around to grow this account!