Pricing futures contracts and call options: examples from oil futures

Econbrowser: $100 a barrel-- what are the odds?

This is a wonderful practical essay on a complex topic. I was trying to figure out the other day how to price a real estate futures option -- I figured out fairly quickly that it was complex. This says why.

The expected price for oil, based on the option calculation, is about $60 in 6 months. About what it is now.

Millennium Simulation: Visiting the universe by simulation

Millennium Simulation

Any feelings of recursion when viewing these videos are purely imaginary.

(Link to mirror site, the original has been slashdotted.)

Highlights from the 2000 official Texas Republican platform

Crooked Timber Gold Standard

I thought the Minnesota Democratic-Farm-Labor platform was a bit flaky. I just needed to read the Texas Republican party platform. I'll never think badly of the DFL's flakiness again.

Puts hair on the chest.

My favorite: "WE OPPOSE: the theory of global warming."

Hmm. I wonder what they say about teaching evolution ...

The word that is not "democracy": it can happen here

The New York Review of Books: The New World Order

Tony Judt, a historian, fears for the American Republic.

...With rare exceptions—notably the admirable Seymour Hersh in The New Yorker—the American press has signally failed to understand, much less confront, the threat posed by this administration. Bullied into acquiescence, newspapers and television in the US have allowed the executive power to ignore the law and abuse human rights free of scrutiny or challenge. Far from defying an over-mighty government, investigative journalists were actively complicit before the Iraq war in spreading reports of weapons of mass destruction. Pundits and commentators bayed for war and sneered—as they continue to sneer—at foreign critics or dissenting allies. Amnesty International and other foreign human rights groups are now doing the work of domestic media grown supine and subservient...

...Historians and pundits who leap aboard the bandwagon of American Empire have forgotten a little too quickly that for an empire to be born, a republic has first to die. In the longer run no country can expect to behave imperially—brutally, contemptuously, illegally—abroad while preserving republican values at home. For it is a mistake to suppose that institutions alone will save a republic from the abuses of power to which empire inevitably leads. It is not institutions that make or break republics, it is men. And in the United States today, the men (and women) of the country's political class have failed. Congress appears helpless to impede the concentration of power in the executive branch; indeed, with few exceptions it has contributed actively and even enthusiastically to the process...

... The American people have a touching faith in the invulnerability of their republic. It would not occur to most of them even to contemplate the possibility that their country might fall into the hands of a meretricious oligarchy; that, as Andrew Bacevich puts it, their political "system is fundamentally corrupt and functions in ways inconsistent with the spirit of genuine democracy." But the twentieth century has taught most other peoples in the world to be less cocksure. And when foreigners look across the oceans at the US today, what they see is far from reassuring.

For there is a precedent in modern Western history for a country whose leader exploits national humiliation and fear to restrict public freedoms; for a government that makes permanent war as a tool of state policy and arranges for the torture of its political enemies; for a ruling class that pursues divisive social goals under the guise of national 'values'; for a culture that asserts its unique destiny and superiority and that worships military prowess; for a political system in which the dominant party manipulates procedural rules and threatens to change the law in order to get its own way; where journalists are intimidated into confessing their errors and made to do public penance. Europeans in particular have experienced such a regime in the recent past and they have a word for it. That word is not 'democracy.'

The study of history is always illuminating. There are several points in American history where the Republic was at risk, and I'm not referring to the Civil War alone. Were we to replay our history, and change a few details, it might have come out quite differently. We are fundamentally human, no different than Germans, Japanese, Argentinians, Chileans, Spanish and others who've descended into brutal political states. I am staggered by how poorly America has managed a single very effective but conventional terrorist attack; imagine if a nuclear or biological weapon had caused mass casualties in a major urban center.

There is nothing in our national character or history that ensures we will not follow the path others have taken.

Sparta 2008: The Militarization of America

The New York Review of Books: The New World Order

Emphases mine.

The New American Militarism: How Americans Are Seduced by War
by Andrew J. Bacevich
Oxford University Press, 270 pp., $28.00

Bacevich is a graduate of West Point, a Vietnam veteran, and a conservative Catholic who now directs the study of international relations at Boston University. He has thus earned the right to a hearing even in circles typically immune to criticism. What he writes should give them pause. His argument is complex, resting on a close account of changes in the US military since Vietnam, on the militarization of strategic political thinking, and on the role of the military in American culture. But his conclusion is clear. The United States, he writes, is becoming not just a militarized state but a military society: a country where armed power is the measure of national greatness, and war, or planning for war, is the exemplary (and only) common project.

Why does the US Department of Defense currently maintain 725 official US military bases outside the country and 969 at home (not to mention numerous secret bases)? Why does the US spend more on 'defense' than all the rest of the world put together? After all, it has no present or likely enemies of the kind who could be intimidated or defeated by 'star wars' missile defense or bunker-busting 'nukes.' And yet this country is obsessed with war: rumors of war, images of war, 'preemptive' war, 'preventive' war, 'surgical' war, 'prophylactic' war, 'permanent' war. As President Bush explained at a news conference on April 13, 2004, 'This country must go on the offense and stay on the offense.'

Among democracies, only in America do soldiers and other uniformed servicemen figure ubiquitously in political photo ops and popular movies. Only in America do civilians eagerly buy expensive military service vehicles for suburban shopping runs. In a country no longer supreme in most other fields of human endeavor, war and warriors have become the last, enduring symbols of American dominance and the American way of life. 'In war, it seemed,' writes Bacevich, 'lay America's true comparative advantage.'

Bacevich is good on the intellectual roots of the cult of therapeutic aggression—citing among others the inimitable Norman Podhoretz (America has an international mission and must never 'come home'). He also summarizes the realist case for war—rooted in what will become the country's increasingly desperate struggle to control the fuel supply. The United States consumes 25 percent of all the oil produced in the world every year but has proven reserves of its own amounting to less than 2 percent of the global total. This struggle Bacevich calls World War IV: the contest for supremacy in strategic, energy-rich regions like the Middle East and Central Asia.[10] It began at the end of the Seventies, long before the formal conclusion of 'World War III' (i.e., the cold war).

In this setting today's 'Global War on Terror' is one battle, perhaps just a sideshow, among the potentially limitless number of battles that the US will be called upon (or will call upon itself) to fight. These battles will all be won because the US has a monopoly of the most advanced weaponry—and they may be acceptable to the American people because, in Bacevich's view, that same weaponry, air power especially, has given war 'aesthetic respectability' once again. But the war itself has no foreseeable end.

As a former soldier, Bacevich is much troubled by the consequent militarization of American foreign relations, and by the debauching of his country's traditional martial values in wars of conquest and occupation. And it is clear that he has little tolerance for Washington's ideologically driven overseas adventures: the uncertain benefits for the foreign recipients are far outweighed by the moral costs to the US itself.[11] For Bacevich's deepest concern lies closer to home. In a militarized society the range of acceptable opinion inevitably shrinks. Opposition to the 'commander in chief' is swiftly characterized as lese-majeste; criticism becomes betrayal. No nation, as Madison wrote in 1795 and Bacevich recalls approvingly, can 'preserve its freedom in the midst of continual warfare.'[12] 'Full-spectrum dominance' begins as a Pentagon cliche and ends as an executive project.

Germany was a militarized society in the 19th century. Japan was a militarised society in late 19th and early 20th century. The US only developed a serious persistent military force after World War II, but increasingly we are becoming a militarized society. This is why so many nations are afraid of us, and why the Economist recently reported a highly negative worldwide opinion of America.

Dyer on Iraq: "This is going to be a long war."

Iraq: The Long War

The military historian Gwynne Dyer summarizes the strategic situation in Iraq. The title is the conclusion -- he foresees a "long" war. He doesn't say what he means by "long"; historically long wars are anything from 8 to 100 years. The current "realist" fashion is to presume an "insurgency"/"civil war" lasting about 5-8 years, then a smoldering "peace" (see Ireland) for perhaps another 20-40 years.

During that time the US forces will be continually stressed and the US will not be able to engage in significant "adventures" elsewhere (much to the relief of North Korea, China, Russia and maybe everyone). Sometime in the next 10 years we will either give up or some administration will start a draft - or hire a very large number of foreign mercenaries. High school students may read about France's Algerian experience, however study of those materials may be considered distasteful, if not seditious.

GWB has established his place in history.

On the unremarked and curious decay of software

MacInTouch: timely news and tips about the Apple Macintosh

From a reader comment in Macintouch:

[MacInTouch Readers] Creating long documents with cross-references, many tables, and heaven forbid - figures - is not really possible on the Mac nowadays. MS Word, even splitting files and trying every trick, is unstable and crashes frequently. This seems to occur across our university and there is much gnashing of teeth.

In the past we tried Framemaker 6 (Win) with Virtual PC. It was too slow. However, in desperation have just tried the combination (VPC 7.02 running Win XP and Framemaker 6 for Win) on a17' 1.67 GHz Powerbook. It was fast enough and stable enough for me to create a 200-page document with 6 chapters, multiple cross references, proper numbering, etc. It is disappointing that this can't be done on the Mac but now there is a solution.

15 years ago one could create a complex 200 page document using WordPerfect 5 for DOS. It wouldn't be all that pretty on the screen, but it would print out well.

I don't think this is an isolated issue. Many software solutions that were created in the 1980s no longer have consumer equivalents. Quite curious really.

Fax and Voicemail to email: MaxEmail and more

In years past I've used eFax, jFax and Faxaway in an attempt to integrate fax and email. Results were mixed. Faxaway was once a good solution for sending email as a fax, but I don't like their billing procedures (they do get some good reviews nowadays and claim to have added fax receipt). eFax (e-Fax) died in an ugly spiral of spam; they were a .com without a business plan. jFax (j-Fax) required some odd sort of proprietary viewer -- I want PDF.

Recently I decided to try again -- especially for fax receipt.

In theory one could use an email/fax service to send faxes as well, but scanning documents then faxing them is too awkward a workflow -- particularly in the absence of a sheet feed scanner. It's technically feasible, but there are problems with both software and hardware.

The hardware problem is the tougher one. Traditionally home scanners were designed for image acquisition, not document management. They haven't had reliable sheet feeders or the software to assemble pages into a document. This may be changing, but it's a slow process that's moved forwards and backwards over the past decade. For most of the past ten years reliable document scanners have started at $1,000 a unit and moved quickly into the five figure range.

Even if the hardware worked, the software I've seen isn't good enough. This task requires software that automates assembling the scanned images into a document, translating that to CCITT encoded TIFF, and uploading the result to the send-scan service (ideally through an API). I don't think there's a market to support this kind of software. Someday, perhaps in the VOIP world of the future, some vendor (Google?) will decide to take over faxing and provide the software/API solution that manufacturers will create hardware for.

So for sending faxes we will buy a dedicated fax machine, or maybe an integrated hydra multi-funtion device (but those have a reputation for buggy device drivers, unreliable hardware, and lousy Mac support). Any online service support for fax sending is just gravy (it's about 10 cents/fax with MaxEmail).

So how about receiving faxes? In theory a standalone fax machine can monitor incoming phone calls line and automatically distinguish incoming faxes from voice calls. In practice none of the people I know have been happy with this; most either end up connecting the fax machine erratically or they pay for a dedicated line. Since I'll eventually buy a fax machine I'll get to test this out myself.

So it's for incoming faxes where a fax to email service ought to work well. Nowadays the best ones support both incoming fax and incoming voice messages. Fax is translated to PDF or TIFF, voicemail to WAV (or something else). Users receive an email with an attached WAV or PDF file, or an email with a link to such. Inbound WAVs or PDFs are retained on the host service for at least 30 days, outbound faxes are not stored.

It's tough to find reviews of such services, Tidbits had the best I found from April 2005 (link to futher discussion on the right side of this page.) They liked MaxEmail's low cost ($15/year, Chicago phone number) solution. Innoport also got good reviews, but they don't offer anything comparable to MaxEmail's low cost Lite solution.

I decided both MaxEmail and Innoport looked reasonable. The latter is more corporate looking, but MaxEmail offered a free limited trial solution and Innoport didn't have any Minnesota local fax numbers. I ended up signing up for MaxEmail's Plus solution with a local fax number -- the Lite solution is a much better deal but our incoming faxes are frequently from small local educational institutions who might balk at sending some information to a remote number.

I'll try MaxEmail for a while and experiment with their voicemail service. I'll compare that to the dedicated fax machine. More later ...

Update 10/5/09: Somehow MaxEmail crept up to a $9/month flat fee. I didn't pay much attention, but that starts to add up for a service we now rarely use. I canceled it.

The BBC destroys classical music CD sales

BBC - Radio 3 - Beethoven Experience - downloads

The BBC has become a rogue force on a world scale. Bully for them.

Beethoven's symponies are no longer under copyrighted, but the performances are. The BBC has a very fine internal orchestra, they had them perform the symphonies and they've released them as MP3 files.

This is not what you'd get were you to "rip" a classical music CD. The performance is preceded by some BBC dialog. There are no tracks, no named portions of the symphony. There's no "metadata" associated with the file. Each MP3 file is online for only one week after the companion radio show -- for reasons that are unclear to me (perhaps they want to give record companies time to shut down their operations?).

Even so, this is the beginning of the end for classical music CD sales. As others do this the economics of the business will shift. At current prices it may become uneconomical to continue to sell classical music CDs. The only way to preserve the business in 10 years will be to charge substantially more money for each CD sold.

Kawasaki Mobile DVD PVS1965: in the new world, electronics gear is mostly disposable

I bought a Kawasaki Mobile DVD System with Dual 6.5" LCD Monitors - PVS1965 from Target. It's a portable DVD player to sedate the children for a long drive to the grandparents. It has a central player and two 7" displays with speakers and headphone jacks. It's quite a marvel of technology, but it's not the technology that I find fascinating. It's the packaging, product placement, and marketing. This is the quintessential 21st century product.

Why is it a quintessential 21st century consumer product? Let me name the ways.

1. It's sold using the name of Kawasaki, who once sold motor bikes. I don't know what they do now, but they actually have nothing to do with this product. Alco Electronics (Ontario, Canada -- but really Hong Kong) is the designer, manufacturer and distributor, they used Kasawaki's name. If you haven't noticed, most brand names mean nothing in the 21st century. (Apple is the obvious exception, I do think Brands will make a comeback in a few years.)
2. It's made in China, but I think it's designed there too.
3. It's not marketed at all. You won't find any reviews very easily -- if at all. It seems to be sold only through Target with this particular name.
4. It's quite sophisticated. (See review)
5. It's disposable (feels feeble.)
   

And now, a quick review.

• It worked for our two week trip. Image quality is poor, but our kids didn't care.
• The kids used headphones to listen.
  
• It allows an audio or video input. I piped my iPod into it using a mini-jack to mini-jack cable. Worked great. The kids listened to music in between exercise outings, bathroom visits, movies, etc. I think I could pipe my iBook A/V output through there and show slideshows of the kids pictures, but I didn't try this (6/15/08: years later, I figure this out.) We monitored movies by using our cassette adapter to pipe audio through the car speakers.
• Volume controls and jack on each display
• Compact very generic switchable power supply
• jpeg, mp3, dvd, cd display or playing
  
• cheap but very convenient case
• Lots of connectors: A/V I/O, Digital out

A few caveats:

• It doesn't remember where a movie was interrupted. If you power off most DVDs, they "remember" where you left off. Not so this device. Turn off the car and you lose your spot in a movie. This was quite annoying.
• There's something odd about the way they handle different display formats, but we left everything at letterbox and it seemed to work.

Nonlocality and quantum theory

Do Deeper Principles Underlie Quantum Uncertainty and Nonlocality? -- Seife 309 (5731): 98 -- Science

One of the 125 questions.

In 1935, Einstein came up with a scenario that still defies common sense. In his thought experiment, two particles fly away from each other and wind up at opposite ends of the galaxy. But the two particles happen to be 'entangled'--linked in a quantum-mechanical sense--so that one particle instantly 'feels' what happens to its twin. Measure one, and the other is instantly transformed by that measurement as well; it's as if the twins mystically communicate, instantly, over vast regions of space. This 'nonlocality' is a mathematical consequence of quantum theory and has been measured in the lab. The spooky action apparently ignores distance and the flow of time; in theory, particles can be entangled after their entanglement has already been measured.

Nonlocality, if it were demonstrated to actually exist and to imply a faster than light "connection", ought to make one wonder if we're "living in a simulation".

Update 6/12/07: Ahh, those were innocent days. I later engaged in a "catchup with physics" project, to discover that nonlocality died about ten to twenty years ago, though there may have been a prolonged period of denial.

Are we alone? One of the top 25 questions in the 125th issue of Science

Are We Alone in the Universe? -- Kerr 309 (5731): 88 -- Science

Wow. Science, the ultra-prestigious journal, has released a special public issue on the top 125 questions in science -- in honor of their 125th anniversary. They highlight 25 of those, including one of my favorite topics -- the question of human solitude. Alas, they don't explore the Fermi Paradox at all.

Be careful though -- I opened all 25 in tabs and my IP address was blocked as though I were some evil hacker. Go slow and read them one at a time.

Google Earth - Keyhole for free, and for more machines

Google Earth - Home

I've installed Google Earth. This is what giant CPUs, fast GPUs, big "pipes", and biggish drives were made for. Google bought Keyhole a while back and they've released a new version that's free and works on many more Wintel machines. It runs reasonably well on my 2-3 yo XP box; I think the primary source of delays are network traffic. I have a lot of free space on my cache drive, so I'll give it a 1GB cache to help with future performance.

A Mac version has been promised, Google is good at delivering on promises.

Very fascinating. Even my wife is truly impressed. I haven't yet tried the feature of setting out a route, then watching Google Earth traverse the path.

Unfortunately they've closed the beta to newcomers -- so check back in about two weeks.

Biden on Iraq: A speech to the Brookings Institute

A New Compact for Iraq

So you want to know what's happening in Iraq? Forget the TV. Forget the New York Times and The Economist and the Washington Post. Forget the bloggers and Newsweek and Time magazine. Of course don't even consider our current regime. Instead, read the speech of Senator Joe Biden.

First, the insurgency remains as bad as it was a year ago. But more jihadists are coming across the Iraqi border, and they are an increasingly lethal part of the problem. Insurgent attacks are back up between 60 and 70 per week. Car bombs now average 30 a week, up from just one a week in January of 2004. In the seven weeks since the Iraqi government has been seated, more than 1,000 people have been killed. The good news is—and there is some good news—the good news is that some disgruntled Sunnis are finally beginning to make the switch from violence to politics. The bad news is, a whole not of them are not. And Iraq's porous borders are being penetrated by well-trained fanatical jihadists who find a seemingly endless supply in what should not surprise us, somewhat of the excessive 600,000 tons of munitions that we acknowledged existed, that we pointed out we could not guard because we had insufficient forces to guard them as long as 18 to 20 months ago.

Our military is doing everything that is possible, and I would suggest more. But there's not enough of them and they are not enough fully trained or capable Iraqi forces to take territory and maintain it from the insurgents. Our forces go out and clean out towns. But then they move to next hornet's nest. They lack the resources to leave a strong residual force behind to prevent the insurgents from returning to and intimidating the fence-sitters, who are too afraid to take a chance on behalf of the government.

I heard with every general and every flag officer with whom I spoke about the inability to mount a serious counter insurgency effort.

Second, Iraqi security forces are very gradually improving. But they are still no match for the insurgents without significant coalition support. General Petreus, who I think is an absolutely first-rate, absolutely first-rate general, who has been in charge of our training of late. And I would argue, had we listened to him much earlier, we wouldn't have squandered the 18 months we've squandered in actually bringing on a more competent, more fully trained and larger number of Iraqi forces. But we have a long way to go. When the American people heard the Secretary of Defense back in February of '04 brag about the fact we had 210,000 Iraqi forces in the security force, and then when 16 months later the administration suggested that there were 168,581—pretty precise number—trained Iraqis, I don't know about where you all live, but I tell where I live, folks asked, "Well, Joe, what's the deal? You got 200,000 Iraqis or 150,00 Iraqis trained, why do you need to keep my kid there? Why do we need 136,000 American forces?"

And the next thing they'd say: "Is even if they're trained and you need all of those forces, then Joe, you're telling me we need well over 300,000 forces to get this thing done?" Remember, remember a guy named Shinseki. Well, ladies and gentlemen, the answer is that there are very few of those Iraqis who are trained to the only standard that counts—that is the ability to take over for an American troop. That's the ultimate exit strategy we've announced a long time ago, be able to replace essentially one for one—an Iraqi for an American force.

Right now, there are 107 battalions in uniform being trained by us. Three of those are fully capably. Translated—it means they can do the job without any American hanging around with them. They can do the job. Somewhere around 27 are somewhat capable, meaning they can do the job is backed up by a significant American presence—backed up by. The rest are in varying degrees of ability to be able to in any way enhance the security circumstance with American forces...

It's a long and very educational speech. But why are we getting our news from senatorial speeches?

Cringely on Web 2.0 -- and Greasemonkey

PBS | I, Cringely . June 30, 2005 - Accessories Make the Nerd

Web 2.0 will be staffed by two different kinds of entrepreneurs -- those who provide staunch web services exposed through APIs (Amazon, eBay, Google, and a bunch more), and those who glue those services together and make some sort of useful abstraction service.

As an example, look at Greasemonkey, a FireFox plug-in that allows dynamic client-side manipulation of web pages. In other words, you write a little JavaScript app that gets applied to every page you want it to on YOUR browser. With Greasemonkey you can add a delete button to Gmail (there isn't one now), add a link on every Amazon book page that looks up that book in your local library and tells you if it's on the shelf or not. In other words, with Greasemonkey you can manipulate anyone's web page to do anything you want (even collect info from other web pages and aggregate it). Now that's powerful.

And it brings us back to Grokster and the Supreme Court. Grokster wanted to be seen as a common carrier like the telephone company. Just because telephones can be used to plan and sometimes carry out crimes doesn't make the phone company a criminal accessory. But Grokster, the Court decided, was built more with the intention of illegally sharing music than the phone company was built to aid kidnappers. So Grokster IS a criminal accessory in the eyes of the court.

What will happen, of course, is that Web 2.0 will turn the next Grokster into several separate organizations offering different services that use a common API syntax to create a Grokster equivalent. Each of these parts will look more like the phone company and less like Grokster until the Supreme Court won't recognize them as the accessories they happen to be.

Crime never goes away, it just evolves.

He's in good form today. There are many subtexts in this essay.