Article/Paper - "Filtering in Finance"

Quote from John Merchant:

To put a definitive end to this thread, let me say this. I just read the paper, and on page one he blows it. He describes both the "signal" and the measurement as noisy. The price is the price is the price. Nothing is "hidden".
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I think the paper illustrates a common theme among those who want to trade (including myself): we run to digital signal processing in the hopes of finding some fundamental insights or methods of analysis to apply to financial data and we quickly run into diminishing returns. The more astute catch on quickly and move on to other areas, the less astute buy tons of dsp books and haunt dsp message boards for years, some never catching on.

The phenomena analyzed by dsp engineers are fundamentally different from financial data. The markets are not communication signals; they aren't "trying" to tell anybody anything. That doesn't mean there's no information to be analyzed, but it's hardly in the form of a clear and deliberate signal containing "extraneous" noise.
 
Quote from John Merchant:

Which, the gutter French or the devastating analysis of the fundamentally bad assumptions in the paper?
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John, feel free to tear it apart on the Wilmott forum - where it was published - if you can be arsed that is.
 
"Never mud wrestle with a pig. The pig likes it too much." Did you read the lame-assed conclusion of the paper? A call for further research, haha! "Il faut continuer de depenser de l'argent sur cette idee foule."
 
Quote from John Merchant:

Been there. Done that. Doesn't work. Those of us who REALLY know Kalman filtering tried that over 20 years ago. In fact, a correspondent from the B-Team who shall remain nameless told me Kalman himself tried it. If you wonder how he did, he still works for a living.

Preaching to the Kalman choir, the fundamental problem is that there is no measurement noise and no noise in the "signal". So you don't need a Kalman. Further, there is no way to create the required physical model because price doesn't behave "physically". If it did you could just calculate as many derivatives as you need for accuracy and project forward. Tried that, too, hahahaha! There ARE underlying market mechanics that you can model mathematically that affect price, but pure price don't cut it. Fucking mathematicians. There are days I wish I wasn't one. Just led me ass-tray for years in the markets.
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Mon Cher Jean Marchand,

This is a typical example of what I have referred to in the past as 'SCIENTISM', i.e. the mimicking of competent application of scientific and mathematical knowledge to areas where it doesn't apply. As you point out, there is a fundamental difference between modelling control systems and market systems. Noise in markets is a pure phantasy. You could say that it is some kind of deviation of market behavior from what one individual dreams that it should or could have been.

Funny is the legend about Kalman and 'market experimentation'. As you know, a similar story circulates about Wiener's losses in the market. Let me quickly add that both Wiener and Kalman are truly great for their contributions to engineering and mathematics.

I must say that for engineers and scientists, confrontation with market tinkering is a great educational experience. It helps a lot in separating 'quant'-clowns from men.

Bonjour à F-M,
nononsense

PS: We are all lucky we still got our Jack!
 
Quote from John Merchant:

"Never mud wrestle with a pig. The pig likes it too much." Did you read the lame-assed conclusion of the paper? A call for further research, haha! "Il faut continuer de depenser de l'argent sur cette idee foule."
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Oh C'mon, you're just no fun, it would be worth it for a larf!
Who knows, you might even get to "educate" the paper's authors, not to mention the students who participate on those forums... :D
 
NN. Not sure it is legend. My correspondent heard Kalman speak and say it himself. Scientism? Numerology! Am now sober so will say no more.

P.S.: Yes! Thank God for Jack!
 
Quote from John Merchant:

Did you read the lame-assed conclusion of the paper? A call for further research, haha! "
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Do we really think that a researcher in trading financial markets after finding a really really profitable solution/ answer would happily publish the whole lot, even honestly without trying to mislead us?

I really don't know. :confused:
 
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