This will be the last Uncertainty Wednesday for 2017 as I am about to go away on vacation. In the last post I had introduced the idea that sometimes when volatility is suppressed it comes back to bite us. I wanted to have a really simple model for demonstrating that and so I wrote some Python code to make a 50:50 coin toss and depending on the result either increment or decrement a value by +/- 2 (I set the initial value to 100). Here is a plot of a sample run:Now to suppress volatility, I mo...

This will be the last Uncertainty Wednesday for 2017 as I am about to go away on vacation. In the last post I had introduced the idea that sometimes when volatility is suppressed it comes back to bite us. I wanted to have a really simple model for demonstrating that and so I wrote some Python code to make a 50:50 coin toss and depending on the result either increment or decrement a value by +/- 2 (I set the initial value to 100). Here is a plot of a sample run:Now to suppress volatility, I mo...

In last week’s Uncertainty Wednesday, I introduced the expected value EV of a random variable X. We saw that EV(X) is not a measure of uncertainty. The hypothetical investments I had described all had the same expected value of 0. It is trivial, given a random variable with EV(X) = μ to construct X’ so that EV(X’) = 0. That’s in fact how I constructed the first investment. I started with $0 with 99% probability and $100 with 1% probability, which has an EV of EV = 0.99 * 0 + 0.01 * 100 = 1 an...

In last week’s Uncertainty Wednesday, I introduced the expected value EV of a random variable X. We saw that EV(X) is not a measure of uncertainty. The hypothetical investments I had described all had the same expected value of 0. It is trivial, given a random variable with EV(X) = μ to construct X’ so that EV(X’) = 0. That’s in fact how I constructed the first investment. I started with $0 with 99% probability and $100 with 1% probability, which has an EV of EV = 0.99 * 0 + 0.01 * 100 = 1 an...