Sunday, April 14, 2013


The Missing Risk Premium is a quick read, but if you really have no time, here's a 120 page PowerPoint highlighting many of its main arguments.

Here's a paper in the JFE by Cao and Han finding that total variance generates lower-than-average returns, in this case, in option markets. Selling the highest volatility options generates a higher positive return over time. Clearly, this is risky, but so is buying volatility. I think this is best explained as another example of lottery ticket preferences, people love to overpay for 100-1 longshots.

Charles Gallistel argues that the essence of calculation is read-write capability, and currently neurologists have no understanding of the physical basis of memory.  His book is here.  That is, "fire together/wire together", something we do know about neuronal synapses, doesn't lead to storing sums in any obvious way, though this seems to be happening in things from bees and ants to people. Once we figure this out, I think database architecture will undergo a quantum leap in productivity, though perhaps we never will. 

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