Monday, 26 September 2011

Computer based trading (CBT). They are playing with chaos , ..and they might burn their fingers.

or .. in retrospect (or introspection) .. why might .. they will certainly burn their fingers

In MoneyScience, in the article "The Future of Computer Trading in Financial Markets Working paper - UK Office for Science Foresight Project (pdf)", the working paper referred to, out of Foresight, Government Office for Science, mentions ..

"However, in specific circumstances, a key type of mechanism can lead to significant instability in financial markets with computer based trading (CBT): self-reinforcing feedback loops (the effect of a small change looping back on itself and triggering a bigger change, which again loops back and so on) within well-intentioned management and control processes can amplify internal risks and lead to undesired interactions and outcomes."

.. feedback loops .. chaotic instabilities .. self-reinforcing .. positive feedback ..

.. the parameters and the variables .. included in the algorithms used .. the conditions set by the choice of such variables and parameters .. approximate .. if that is only ..

real live situations ..on-line .. assessing states .. market states .. the triggers set .. what computer based trading recognise as value .. in whatever way that value is assumed by its operator .. and accordingly to act .. conclude the sale or purchase .. the transaction

undesired interactions .. if it is that only .. apart from what is regarded as.. unforeseen .. unpredictable .. it is quite interesting .. to see up to what level .. the control .. 'of the well-intentioned management and control processes' ..introduced .. can eliminate .. undesired interactions .. the unforeseen, unpredictable outcome states ..

they are playing with chaos .. and they might burn their fingers, or will certainly burn .. while doing so ..

interesting .. to see though .. what that .. 'key type of mechanism' .. and what are .. the 'specific circumstances' ..

but as usual .. with myself .. get carried away .. before I get to know .. more of the details ..

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