Something Interesting to Read July 2014 - page 2
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Bayesian Methods for Hackers: Probabilistic Programming and Bayesian Methods
The Bayesian method is the natural approach to inference, yet it is hidden from readers behind chapters of slow, mathematical analysis. The typical text on Bayesian inference involves two to three chapters on probability theory, then enters what Bayesian inference is. Unfortunately, due to mathematical intractability of most Bayesian models, the reader is only shown simple, artificial examples. This can leave the user with a so-what feeling about Bayesian inference. In fact, this was the author's own prior opinion.
After some recent success of Bayesian methods in machine-learning competitions, I decided to investigate the subject again. Even with my mathematical background, it took me three straight-days of reading examples and trying to put the pieces together to understand the methods. There was simply not enough literature bridging theory to practice. The problem with my misunderstanding was the disconnect between Bayesian mathematics and probabilistic programming. That being said, I suffered then so the reader would not have to now. This book attempts to bridge the gap.
If Bayesian inference is the destination, then mathematical analysis is a particular path to towards it. On the other hand, computing power is cheap enough that we can afford to take an alternate route via probabilistic programming. The latter path is much more useful, as it denies the necessity of mathematical intervention at each step, that is, we remove often-intractable mathematical analysis as a prerequisite to Bayesian inference. Simply put, this latter computational path proceeds via small intermediate jumps from beginning to end, where as the first path proceeds by enormous leaps, often landing far away from our target. Furthermore, without a strong mathematical background, the analysis required by the first path cannot even take place.
Bayesian Methods for Hackers is designed as a introduction to Bayesian inference from a computational/understanding-first, and mathematics-second, point of view. Of course as an introductory book, we can only leave it at that: an introductory book. For the mathematically trained, they may cure the curiosity this text generates with other texts designed with mathematical analysis in mind. For the enthusiast with less mathematical-background, or one who is not interested in the mathematics but simply the practice of Bayesian methods, this text should be sufficient and entertaining.
The choice of PyMC as the probabilistic programming language is two-fold. As of this writing, there is currently no central resource for examples and explanations in the PyMC universe. The official documentation assumes prior knowledge of Bayesian inference and probabilistic programming. We hope this book encourages users at every level to look at PyMC. Secondly, with recent core developments and popularity of the scientific stack in Python, PyMC is likely to become a core component soon enough.
PyMC does have dependencies to run, namely NumPy and (optionally) SciPy. To not limit the user, the examples in this book will rely only on PyMC, NumPy, SciPy and Matplotlib only.
When Genius Failed: The Rise and Fall of Long-Term Capital Management
On September 23, 1998, the boardroom of the New York Fed was a tense place. Around the table sat the heads of every major Wall Street bank, the chairman of the New York Stock Exchange, and representatives from numerous European banks, each of whom had been summoned to discuss a highly unusual prospect: rescuing what had, until then, been the envy of them all, the extraordinarily successful bond-trading firm of Long-Term Capital Management. Roger Lowenstein's When Genius Failed is the gripping story of the Fed's unprecedented move, the incredible heights reached by LTCM, and the firm's eventual dramatic demise.
Lowenstein, a financial journalist and author of Buffett: The Making of an American Capitalist, examines the personalities, academic experts, and professional relationships at LTCM and uncovers the layers of numbers behind its roller-coaster ride with the precision of a skilled surgeon. The fund's enigmatic founder, John Meriwether, spent almost 20 years at Salomon Brothers, where he formed its renowned Arbitrage Group by hiring academia's top financial economists. Though Meriwether left Salomon under a cloud of the SEC's wrath, he leapt into his next venture with ease and enticed most of his former Salomon hires--and eventually even David Mullins, the former vice chairman of the U.S. Federal Reserve--to join him in starting a hedge fund that would beat all hedge funds.
LTCM began trading in 1994, after completing a road show that, despite the Ph.D.-touting partners' lack of social skills and their disdainful condescension of potential investors who couldn't rise to their intellectual level, netted a whopping $1.25 billion. The fund would seek to earn a tiny spread on thousands of trades, "as if it were vacuuming nickels that others couldn't see," in the words of one of its Nobel laureate partners, Myron Scholes. And nickels it found. In its first two years, LTCM earned $1.6 billion, profits that exceeded 40 percent even after the partners' hefty cuts. By the spring of 1996, it was holding $140 billion in assets. But the end was soon in sight, and Lowenstein's detailed account of each successively worse month of 1998, culminating in a disastrous August and the partners' subsequent panicked moves, is riveting.
The arbitrageur's world is a complicated one, and it might have served Lowenstein well to slow down and explain in greater detail the complex terms of the more exotic species of investment flora that cram the book's pages. However, much of the intrigue of the Long-Term story lies in its dizzying pace (not to mention the dizzying amounts of money won and lost in the fund's short lifespan). Lowenstein's smooth, conversational but equally urgent tone carries it along well. The book is a compelling read for those who've always wondered what lay behind the Fed's controversial involvement with the LTCM hedge-fund debacle. --S. Ketchum --This text refers to an out of print or unavailable edition of this title.
Hedge Fund Market Wizards: How Winning Traders Win
Fascinating insights into the hedge fund traders who consistently outperform the markets, in their own words
From bestselling author, investment expert, and Wall Street theoretician Jack Schwager comes a behind-the-scenes look at the world of hedge funds, from fifteen traders who've consistently beaten the markets. Exploring what makes a great trader a great trader, Hedge Fund Market Wizards breaks new ground, giving readers rare insight into the trading philosophy and successful methods employed by some of the most profitable individuals in the hedge fund business.
A candid assessment of each trader's successes and failures, in their own words, the book shows readers what they can learn from each, and also outlines forty essential lessons—from finding a trading method that fits an investor's personality to learning to appreciate the value of diversification—that investment professionals everywhere can apply in their own careers.
Bringing together the wisdom of the true masters of the markets, Hedge Fund Market Wizards is a collection of timeless insights into what it takes to trade in the hedge fund world.
Foreign Exchange Operations : Master Trading Agreements, Settlement, and Collateral
The volumes traded on the international foreign exchange market are huge, exceeding $4 trillion daily, far surpassing those of all other portions of the international capital market. Yet there is surprisingly little written to help professionals who want to learn about foreign exchange and to gain proficiency in the mechanics of trading in this important market. Even less has been written to explain the mechanics of foreign exchange operations, how money flows, and how the settlement process works.
Traders, operations personnel, hedge fund managers, investment bankers, financial managers, attorneys, and financial regulators will all find this volume indispensable for understanding what happens behind the scenes between the execution of a trade and its settlement.
David DeRosa, a veteran of financial markets, explains how the foreign exchange market conducts trading and operations. He addresses the practical considerations of how market participants contract with one another to do trading and operations, conduct margin and credit, and undertake foreign exchange prime brokerage services.
DeRosa's work is immensely practical. Understanding the operations process helps control costs, minimize errors, and to some extent preclude fraud. DeRosa's explanation of operational conventions and their development also reveals the story of how the foreign exchange market grew and developed over the last four decades: a largely ignored but important corner of financial history.
Foreign Exchange Operations walks the reader through all practical aspects of foreign exchange operations, from trade execution to documentation to trade confirmation. It focuses on the processes by which foreign exchange trades are settled using real time gross settlement systems. The later chapters focus on the legal and financial superstructure of the market, including master agreements, margin and collateral practices, and foreign exchange prime brokerage. DeRosa provides concrete examples to illustrate market practice, including more than 100 exhibits that contain real-world examples of trades, confirmations, settlement instructions, and other key documents.
Some of the main topics include:
Swing and Day Trading: Evolution of a Trader
Evolution of a Trader explores the four trading styles that people use when learning to trade or invest in the stock market. Often, beginners enter the stock market by:
This series provides comprehensive coverage of the four trading styles by offering numerous tips, sharing discoveries, and discussing specific trading setups to help you become a successful trader or investor as you journey through each style.
Trading Basics takes an in-depth look at money management, stops, support and resistance, and offers dozens of tips every trader should know.
Fundamental Analysis and Position Trading discusses when to sell a buy-and-hold position, uncovers which fundamentals work best, and uses them to find stocks that become 10-baggers—stocks that climb by 10 times their original value.
Swing and Day Trading reveals methods to time the market swings, including specific trading setups, but it covers the basics as well, such as setting up a home trading office and how much money you can make day trading.
Flash Boys : Michael Lewis
Flash Boys is about a small group of Wall Street guys who figure out that the U.S. stock market has been rigged for the benefit of insiders and that, post–financial crisis, the markets have become not more free but less, and more controlled by the big Wall Street banks. Working at different firms, they come to this realization separately; but after they discover one another, the flash boys band together and set out to reform the financial markets. This they do by creating an exchange in which high-frequency trading—source of the most intractable problems—will have no advantage whatsoever.
The characters in Flash Boys are fabulous, each completely different from what you think of when you think “Wall Street guy.” Several have walked away from jobs in the financial sector that paid them millions of dollars a year. From their new vantage point they investigate the big banks, the world’s stock exchanges, and high-frequency trading firms as they have never been investigated, and expose the many strange new ways that Wall Street generates profits.
The light that Lewis shines into the darkest corners of the financial world may not be good for your blood pressure, because if you have any contact with the market, even a retirement account, this story is happening to you. But in the end, Flash Boys is an uplifting read. Here are people who have somehow preserved a moral sense in an environment where you don’t get paid for that; they have perceived an institutionalized injustice and are willing to go to war to fix it.
Asset Price Dynamics Volatility Prediction
This book shows how current and recent market prices convey information about the probability distributions that govern future prices. Moving beyond purely theoretical models, Stephen Taylor applies methods supported by empirical research of equity and foreign exchange markets to show how daily and more frequent asset prices, and the prices of option contracts, can be used to construct and assess predictions about future prices, their volatility, and their probability distributions.
Stephen Taylor provides a comprehensive introduction to the dynamic behavior of asset prices, relying on finance theory and statistical evidence. He uses stochastic processes to define mathematical models for price dynamics, but with less mathematics than in alternative texts. The key topics covered include random walk tests, trading rules, ARCH models, stochastic volatility models, high-frequency datasets, and the information that option prices imply about volatility and distributions.
Asset Price Dynamics, Volatility, and Prediction is ideal for students of economics, finance, and mathematics who are studying financial econometrics, and will enable researchers to identify and apply appropriate models and methods. It will likewise be a valuable resource for quantitative analysts, fund managers, risk managers, and investors who seek realistic expectations about future asset prices and the risks to which they are exposed.
by Michael Lewis
New York Times Bestseller. “A superb book. . . . [Lewis] makes Silicon Valley as thrilling and intelligible as he made Wall Street in his best-selling Liar’s Poker.” - Time
In the weird glow of the dying millennium, Michael Lewis set out on a safari through Silicon Valley to find the world’s most important technology entrepreneur. He found this in Jim Clark, a man whose achievements include the founding of three separate billion-dollar companies. Lewis also found much more, and the result - the best-selling book The New New Thing - is an ingeniously conceived history of the Internet revolution.Trading Without Gambling
Many people perceive trading as nothing more than a gamble—and to many traders it is. But there are still traders who, year after year and month after month, consistently make money trading. How do they do it? They have learned how to separate gambling from trading. And the way they do this, says Marcel Link, is by developing and trading with a proper, well-thought-out plan. In Trading Without Gambling, Link shows how to create and use a sound game plan to improve every aspect of trading—including finding trades, timing, knowing how much to trade, where to exit, and how to adjust risk—while leaving very little to gambling.
Building on the strategies first revealed in his highly successful previous book, High Probability Trading, Link reveals that the key to winning in the markets is planning for it and knowing in advance how to react to certain situations—and this is exactly what a game plan will do for you. Trading is not simply about buying and selling, he explains, but about knowing when and why to do so. Link details the benefits of a game plan in easy-to-understand, straightforward terms, showing how a plan will help you pick the best trades, monitor and exit trades, keep you from overtrading, keep you focused and financially in line, prepare you for what the market has to offer, and ultimately take the gamble out of your buying and selling. Drawing from his twenty years of trading experience, Link offers numerous examples of both his good trades and his mistakes, enabling you to learn from those mistakes and become a better trader in the process.
This book, the author stresses, is not for the lazy trader. You won't find any get-rich-quick strategies here, but you will learn how to work smart and work hard to improve your bottom line. After reading Trading Without Gambling, you'll be in a better position to excel at this difficult endeavor.
Naked Forex : High Probability Techniques For Trading Without Indicators
Most forex traders lose because they persist in believing three myths of successful trading. Myth 1: successful trading must be indicator-based. Myth 2: successful trading must be complex. Myth 3: successful trading is dependent on the trading system. Well, it's time to get over these misconceptions and start winning, say authors Alexander Nekritin and Walter Peters in Naked Forex.
Long before computers and calculators, trading was handled without complex technical analysis and indicators. Trading was old school—based on using only price charts—and it was simple, profitable, and easy to implement. In Naked Forex, Nekritin and Peters show you how to successfully trade this way.
This lively, three-part book lays out the authors' techniques in detail. The first part walks you through the fundamentals of forex trading and establishes the ruling tenet of all naked forex trading: price is king. In Part Two, the authors share methods that lead to profits, including using resistance zones, price patterns, transitions, and such intriguing trade setups as Wammies, Moolahs, and the Last Kiss. In the last part of the book, you'll learn to understand your own trading psyche. Mastering your own attitudes toward risk, says coauthor Peters, who is also a PhD in psychology, is how you finally become a true professional trader.
Engaging and informative, this practical guide touches on many provocative topics, including:
Is it possible to outwit some of the most determined, intelligent, and well-resourced traders in the world? Find out what it takes
The concept of "zones" and the seven most important things you need to know about them
Six key stages you must address for every trade
Are you a runner or a gunner? When it comes to exiting a trade with money, it's important to know
The one secret expert traders all share, why boring is good, and six steps to becoming an expert
Why understanding yourself is paramount. What is your attitude towards money? What are your biases? Find out how to find out
Naked trading is liberating, exhilarating, and frees you to focus on markets, instead of the indicators, say Nekritin and Peters. Follow their proprietary techniques to profitability with Naked Forex.