News From UnRisk

UnRiskers have relaunched their home page. It's now presenting the orthogonality of solutions, products and the technology stack even clearer.

You know that I find this a reference for quantitative innovations that work and sell. A technology stack that leverages the transformative development of products and solutions. UnRisk technologies are multi (programming) language, inherently parallel and platform agnostic. They combine symbolic programming with the most advanced numerical techniques and enable to co-build, co-create and co-evolute new things with an unprecedented low effort…

UnRisk Omega a reference

UnRisk Omega is the co-creation of multilateral and UnRisk. It's all about risk-informed investment management. It's computing millions of prices and risk spectra on a scalable grid to support investment decisions and with its tablet font-end it goes where its users go.

To me UnRisk Omega is a reference for the intelligent combination of computational knowledge and context technologies.

Complexity Economics

The classical macroeconomics is permeated by the idea: rational actors work in a world of equilibria. In this world of thought, it is only logical that bubbles are not accidents but cycles - or fluctuations.

And there's no doubt, it has often helped us to take a simplified view of economics being a "machine".
But if we are looking for an adequate politics that responds to new challenges, we need to draw a more realistic picture of the economy.

The complexity economics develops evolutionary - not solely on the basis of computational knowledge, but by tinkering, experimenting, discovering, discarding, remixing...

Game Changing

In this view, markets are "played".
If the same always win, the game becomes boring before the game rules are changed 
And that feeds my totally immodest idea to outline a politics that is not based on existing idols.

What does all this mean?

If markets are saturated of chocolate, they turn to, say, nuts and selling more chocolate becomes too expensive. This opinion is still widely used. Income per unit declines with increasing market saturation describes this theory in short.

But, markets may get info about an excellent quality of cocoa beans at the "foggy southern slopes of certain mountains of Venezuela". Luxury vintage chocolate is made of them. These new brands in the high-price segment meet an already developed market and the margins increase along the saturation. Vintage chocolate that gaining market share find it easier to get more market share.

The theory of increasing returns

You'll find a great rationale about this in Brian Arthur's papers and books.

The theory of increasing return applies in many sectors or even regions, but it's central in the "high-tech" economy. These products have differentiating principles. They provide frameworks and platforms to build innovations atop. Often they are solutions and development systems in one. Innovations of a type that I've discussed here...

The monopolist is no longer the classic salt monopolist. Working in the "data salt mines" is difficult, but "promising". Data  owners…can define rules, plan moves and design game arrangements for increasing returns

"Complexity" is a key principle of differentiation…and dominance.

Soon, I'll look into the complexity of work.

Fire. The Wheel. Double Entry Bookkeeping

An important inventor might have said that this are the greatest innovations of mankind.

To understand our complex economic systems, we need to dive into many things, but probably start with money. Its hard to believe, but money is created out of nothing by credit (debt). But, this is the fundamental principle that makes money work.

Economics should pay much closer attention to debt - but not as a variable disclosing the dark side of an economy.

Dirk Bezemer, University of Groningen, tackles the important questions and offers a concise and insightful explanation of how money works:

Debt, a great invention

In the following videos he describes straightforward that it's important where freshly created money goes to. Whether it's used to create income or wealth (by speculative investments). Speculative investments cause busting bubble because they run into a reverse price logic - raising prices create temporarily more demand.

But the recent crisis has shown that there is no common sense on how the money policy shall act in response. We've seen money creation by lending, but there's also central money printing. Is it enough? Where shall it go to? What about amount and inflation?

As a system person, I think of the underlying operating system fist. But wait...

Is the money system programmable?

Money is a symbol of credit and debt, as well as assets and liabilities. It's not a thing, not a piece of clay, gold, paper ... it's a contract. We use a bank debt as money and thus keep the economy going, which works in a interwoven form of contracts as the basis of exchange.

It would be trust building, if the money system could be understandable and efficiently programmed:

A quick trip to the plateau of abstract programming

In the understanding of the theory of complex systems, a system can be programmed, if it's solid enough to save and liquid enough to transform.

Computers store data and transforms signals. In a modern form of programming, Symbolic Programming, higher symbols are treated like data. Symbols are mathematical expressions, geometric objects, graphs...even programs.

Recently, a Digital Currency Initiative, with a strong commitment of the Media Lab at MIT, was established to explore whether a system can be built that treats money like data. Digital money, as Bitcoin, is already available. However, the initiative wants more.

They want to find out whether a user controlled technology such as the Internet, could act as a bank, creating money and do all the clearing, but, being not owned by any person, company, public sector…

Our money is capable of storing value and being a media for economic transactions. It should be programmable. But the money policy does not provide or use something like an operating system, a system that operates between the money system and its applications, managing memory, monitors, request and suspends processes, operates undoes…

Storage of value is an central point of the critic…it supports capital accumulation and misbalance, say the critics. If Karl Marx had known the quant finance jargon, he might have said: storing value is a long position that can be used to put pressure on the production system and workers. And in fact it can be used for a fix memory allocation or get processor priorities tar slow down the (economic) system.

I'll come back to this…but before, I'll put some thoughts on the complexity of economy and work…

A River Flows From the Industrial Revolution

I haven't posted for a while, because I started working on a larger concept that is a longer answer to the impact of the complexity economy and innovation to the needs of politics. Yes, I became megalomanic…in a way. I've never worked in a political set-up and I've no education in political sciences.

Innovation is about change. It influences our lives increasingly. But does politics change enough in reaction?

I'm far away from completion of the concept, but I'll share thoughts in a series of posts. Working title: Quantitative Politics.

No chimney smokes without benefit?

Before the era of Industrial Revolution most things were made  at home or in small shops. Individualized products were produced with simple hand tools and devices .

Many people lived an arduous life in mostly rural communities. Industrialization changed everything. Machines produced mass-products in factories. Textile, steel...the steam engine, spawned new systems of transport, communications and banking.

People migrated to cities whose houses were often as black as their faces. In order to redeem more they had mostly toil more. Their work became measurable, observable, clocked…systematic and machine like.

This started an evolution of products and production:

Mechanized

The driver of this era is the mechanization. Mechanisms modified products and production. In a car they determine the function and power of the engine, gears…and bring comfort in, say, windows manipulation.

Mechanized things initiate an evolution of feature-rich, comfortable, autonomous, connected products, which are produced by increasingly autonomous machines and systems.

Electrified

The historical development of electrification is determined by magnets, dynamos and generators. Electricity "generated" light, heat...and drives motors. It extends the functionality of products and can replace mechanisms. Cars are illuminated and electric motors add comfort to windows manipulation…currently, they replace combustion engines and transmissions.

Computerized

Computers are not mere tools. They're universal machines controlling products and production by programs. Embedded systems in cars help drivers to drive better and information systems help them to navigate better from A to B.

Cognitized

Cognitizing is the technology of autonomous, intelligent systems, empowered by Artificial Intelligence techniques. The self-driving car is one of its objects of desire. I've posted my view on cognitizing here

Connected

Local intelligence allows to process complex information, make decisions based on experience and inference swiftly. Smart self-driving cars are technically better if they've better sensors, faster processors and more intelligent programs. Integrated into an information network they'll move like a swarm optimizing traffic and their own ride.

Connected autonomous systems exchange information among themselves, with the environment and with people. Connected they perform more functions than alone. 

But how smart shall a smart connected thing be? How shall it interact with people?

A tightly coupled, complex system of intelligent subsystems may become a monster. Why? Complex means unforeseen events may happen and closely related, there's not enough time to react.

But no doubt, smart, connected products, services and production live in co-existence, create new things and innovate in co-evolution…

In a regime of connected things and actors terms such as origin, use, add-on…may blur and the coevolution of labor and economy may have unintended effects on value, price, property, exchange, utilization, market, money...and risk.

Do we have instruments helping us to combat eventual excesses? Is there an adequate policy?

I'll look into this things through the lens of an amateur in economy, social affairs and politics.

I'll touch the complexity economy and the future of work, factory and lab work, income and wealth, ask myself whether our money system is programmable, how rights can make a wrong and sketch a path to make change happen…I'll think again about the key to innovation…and come hopefully to a political framework.  

Constructionism

In earlier stages of my work I thought, to set the stage for successful usages and leverage technologies innovations shall be solutions and development systems in one. But then I learned that the same technologies can help building quantitative problem solving skills.

Constructionism

Constructionist learning is learning by exploration and experimentation….it's also called exploration, experiential, experimental learning. It suggests learner-centered arrangements where learners use knowledge that they already have to acquire a new one.

Constructionism is not new. It has been situated on the early 80 in combination with programming.

Problem-based learning

It's a constructionist method which allows learners to learn about a subject by exposing them to multiple problems. Teaching is replaced by the construction of problem solvers by in a hands-on way.

What's important in such a problem-based learning arrangement
  • Learning shall be related to a larger task (motivation)
  • Learners shall feel that they can grow into an ownership of the ovarall problem (acquisition)
  • The tasks and the learners abilities must match (intensification)
  • Learners shall be enabled to evaluate their results and relate them to their learning process (assessment)
Constructionist learning can be very effective in quantitative fields, where computational knowledge is the core.

Constructionist Technologies

Not so surprisingly it's the same technology that helps to Think It. Build It. Programming in a symbolic language with a variety of built in algorithms and knowledge, the ability to represent results in various insightful forms, a document centered front-end to share dynamic information…

It's amazing, following a few principles quant innovations become solutions and development systems in one adding-on a constructionist learning arrangement. 

Triangular Relation

Storydoing is about lighting up the medium of people.

Storydoing in a triangle
  • The purpose of your innovating company is to serve your clients and partners
  • Its brand is to offer education and access also to everyone else
  • And its opportunity is to enrich and leverage the work of your teams
If you do it that way, you can't think short term. It's not a complicated relation, but its a game change. Instead of treating teams, clients, partners, others as side projects for return maximization or growth, you work with them to maximize the value of a larger project…whilst enabling each participant to profit. Your innovation works and sells…but that's not enough.

Storydoing at UnRisk

About 15 years ago we created UnRisk. Brand naming is hard. We wanted to communicate the essence of our technology in one word. It was the begin, the title of our story.

A bigger picture of risk

We didn't have in mind that UnRisk will help removing risk…we decided to draw a bigger picture of risk. When the financial regimes change you need to unlearn, because the rules of risk management have changed.

The controlling idea

To use UnRisk means getting insight into the sensitivities of all relevant factors and optimizing risk in regimes where the conditions are known and relatively safe. But, it means also to analyze the tail risk, where conditions are uncertain. 

A kingdom for a technology stack

To manage the change your system needs to change too and we knew from the beginning: we must build a technology stack enabling transformative developments swiftly.

To think and build highly automated derivative and risk analytics, we carefully chose the most advanced mathematical schemes and mapped all practical details...and for advanced risk management, we implemented an abstract concept of nested instruments across nested scenarios…

UnRisk covers a broad variety of deals from the simplest to the most sophisticated and complex.

Story doing not knowing what storydoing is

First we decided that support is the responsibility of development and sales and customers relation of the UnRisk heads.

2009 we established UnRisk Academy to package know how and offer courses and workouts giving full explanation on quantitative finance theories, mathematical approaches and critical implementations. The Academy heads wrote A Workout in Computational Finance published by Wiley. Live workouts were held in all major finance places and attracted hundreds of quants.

2010 we unleashed the complete programming power behind UnRisk as UnRisk Quant. It comes with the UnRisk Financial Language implemented in its valuation and risk, VaR and xVA engines. It enables developers to swiftly build risk-related quantitative finance solutions.

In a brand new project with multilateral of switzerland we co-create a system that explains complex financial concept to non experts.

It's all about open innovation, transparency, education, access…lighting up the medium people…clients, actors, partners, remarkers…

The results are amazing...

Storydoing

In the previous series of posts I've written about values of your innovation unlocked by storytelling/storydoing…about the things that matter for/with those who care.

From Storytelling to Storydoing

In Simple Questions I've boiled down the topics, matters, context and work into questions including Who are you? and Who's it for? because this is the combination that turns storytelling into storydoing. You integrate the medium of people. Clients, actors, partners, remarketers…

You operate your Brand Promise. Consequently storytelling is a responsibility of marketing, but storydoing is a to-do for the entire organization.

A Great Storydoing Innovator

Great storydoers put their story at the center of their business and build it into their innovations. They live what they're for and what they're against.

They are on a quest. And that's not: becoming the biggest and the most profitable…they inspire. And they have defined enemies, like bad services...

How Great Storydoing Quant Innovators fight enemies

Quant innovations can be thrillers. They fight operational enemies by methodology and technology... To fight them quant innovators define constructors and manage progressive problems via white boxes…and give never false comfort about the assumptions of their models and methods.

Great storydoers fight closed-solution enemies by services and education...giving full explanation on quantitative theories, models/methods and critical implementations…

They even unleash the programming power behind their innovation and co-create groundbreaking things with clients and partners atop it.

They explain complex concepts to non-experts. It’s an important way to check on yourself, to be sure that your story is at least halfway plausible.

Remember, don't do it alone...

Simple Questions

In the previous time period I've read quite a lot of Seth Godin's and Bernadette Jiwa's publications and tried to calibrate their general models into the working space of quant innovation.

It's about unlocking values by storytelling and storydoing…about doing things that matter for/with those who care…

If you've time enough to brood about your topics, matters, contexts and work you always can boil them down to the big controlling ideas and conventions by answering

Simple questions for innovators
  1. What's it for? - if the innovation works what will it change? What tasks will be carried out?  What does it cover, how deep does it go? 
  2. Who are you? - innovations come from teams. Are they innovating as scientists, practitioners, software engineers, artists…? Do they want to be game changers or pop stars? How do they explain what they did? 
  3. Who's it for? - it's difficult for an innovation to change a certain behavior, but impossible to change every. So, who is it made for? What do they think? How do they work? Will they trust you? 
  4. Will it sell wide? - you've identified those who care about your innovation. Will they share the experience? Will they work with you to help stretching and expanding your market segments?
Magically, the more specific you are in your intent, the more probably you will succeed. You need to change behavior, but not too much...be a game changer and educate your clients beyond use training…and you need to know how to make your ideas resonate with your teams, the actors and clients of your innovation.

And don't forget to ask yourself: What and who is it not for? Who are you not?

If you're clear about this and live it - you're ready for a compelling brand story.

Brand Promise

IMO, a brand promise connects purpose, positioning, team and client experience…It enables a brand delivery connecting with your clients (by head and heart) and differentiate your brand. In short, it's a promise about expectations, stories and relations…all related atop your innovations.

Innovation + Meaning = Brand

Product + Meaning = Brand  is the formula Bernedette Jiwa has derived to explain marketing and brand storytelling. I just substitute product by innovation and with our innovation type's five leaf clover we've the view that helps telling the story that is marketing. Types will save us…they'll manage expectations of clients (and actors)…

Brand is the meaning that clients attach to your innovation…Your prospective clients will choose your innovations if they trust enough in your promises

Branding

is about building that trust. What influences the creation of the meaning for your clients?
  • Your worlds view, personality, values, visions...
  • Your communication, voice….
  • Your actions
  • How you build user experiences
  • Your design, imagery, messaging…(often misunderstood as brand)
Remember, you want make people care, build long lasting loyalty, make people feel good about their decisions…

One More Thing

We know now, a technology stack helps us build transformative quant innovations from what we think. A symbolic language for declarative programming with built in algorithms and knowledge…engines that implement them inherently parallel and platform agnostic, a data framework, deployment services...

Thrilling

We also know that a quant innovation can be thrilling. A thrilling innovation must have a big idea, key actors, danger and decision support, a path and methodologies, side benefits…and maybe an ironic payoff. It's units - tasks, workflows and the system as a whole - shall offer constructors, progressive problems management and solutions…all related to the type, big wants, needs and conventions.

But there's one more thing:

Aesthetic pleasure

Beauty may come back and aesthetic pleasure may triumph function. In 2016. Beauty is often sidelined in periods of crisis and downturns…it's argued that objects must function. But if you think of interaction patterns beauty is often part of the function….and I do not talk about the vintage user interface designs.

In a world in which we're overloaded with information beauty will be one of the ways to differentiate look-and-feel…

We've technologies that help us making quant innovations thrilling and beautiful. This is much more than fit-for-purpose, quality-full…

Think It. Build It

What's the dominant motivation for scientific, theoretic or innovative work? We want to build groundbreaking things. Things that move farer, faster and more secure, things that produce and transform energy more efficiently and sustainable, things that let us observe other things more accurate..., things that keep us healthy and happy, things that inform, educate and entertain us, things that connect us…

The evolution of products is characterized by mechanization, electrification, computerization and now cognitization and connection. They all describe jumps in science, theory or innovation.

Tasks

Doing this we try to express laws of nature in terms of statements of tasks. A robot program running at a robot control is a task that expresses a certain kinematic and dynamic theory of mechanisms. It shows, whether it is possible or not. In constructor theory such tasks are called constructors.
In short, in this view physics and information theory are combined.

Tools

If we think of the history of tools from the fist wedge to the computer, we'll see that higher level tools are built by/atop lower level ones. But a computer is not a mere tool…it's a universal (programmable) machine that empowers the development of a vast variety of tools...But programming languages follow the same principle.

Tools enable more people to build more things.

Expressions

Expressions have two aspects: a language (their interface) and an operational-semantics (their evaluation) aspect. Programs expressed in programming languages carry out tasks. Programming tools enable more people to program more.

Programming languages

They provide certain programming styles and built in algorithms and knowledge. A declarative style needs usually more algorithms and knowledge and an offer to select them automatically than a procedural style.

IMO, a modern programming language is multi-paradigm, knowledge-based, automated, multifunctional, expressive…and (consequently) symbolic.

Symbolic programming

In computation we usually thought of the manipulation of numbers in computers.
The idea of symbolic languages is to represent things in the same way and let computers manipulate  them. A symbol can describe a mathematical expression, graph, geometrical object, movie, … and even a program. A representation in the symbolic way means, they are pieces of data.

Domain-specific programming

Domain-specific languages provide domain-specific language expressions (to represent a domain-specific problem), data and knowledge. If the domain needs quantitative treatment the knowledge is algorithmic.

Putting everything together

Wolfram Language is a language that puts everything together...It allows for programming a vast variety of solutions AND build hierarchies of languages - among them domain-specific ones. They all inherit the symbolic structure and become knowledge-richer and richer.

We've built the UnRisk Financial Language atop Wolfram Language…and extended it into other domains of steel making, plastics fabrication...

And because it's declarative, financial experts just think of new, say, portfolio and risk management processes and as they think about them they write them down and operate them in their semantics of risk-informed investment-, assert- or wealth management or what have you.

They Think It. Build It. It's a completely new way of innovating in quantitative fields. You write down big idea non fiction stories that operate tasks…

Think and build the most innovative, cognitized and connected things for the future.

I'll be pleased to help...

Targeting Me

I don't evaluate EC funded innovation projects any longer. About 500 projects are enough. You know, how I think - after all.

So, I don't even think about walking through innovations that I do not find exciting. At the other hand I do things where I'm good at only.

How do good innovators and innovation advisors come together?

My entry in a file of an innovator looking for advice may read:

Exner, Herbert, Exner advice, quant innovations, business development, market risk optimization, financial-, process., manufacturing-industries, computational knowledge,  symbolic and numerical computation, hybrid programming, 6-10 projects a year,

I'm 70 and I can live from the most successful achievements of the past. So, I'm not moving around seeking projects. But, I'm still passionate about new technologies and business development. And, if I find a project exciting, I meet the people behind…

My fun factor

The more exciting the innovations and people behind are the less I charge…and I do not charge for the first entry work in phases where success is uncertain…

Chart your innovation

Send me something about the controlling idea, technology, business expectations…of your innovation.   It may be a candidate for the classic of the future…we'll find it out together. If yes, I'd love to speak for it.

E-mail me

Maths + Arts = Smart

In Quant Innovations you'll usually provide engines that collect the required models, calibrate them and run methods solving them adequately.

A kingdom for a powerful computation engine

They may be built in a multi paradigm programming style, they may be multi language, inherently parallel and platform agnostic…you've chosen the mathematics carefully, selecting the most advanced schemes solving Stochastic or Partial Differential Equations, Monte Carlo Simulators…

They may implement a high-level domain specific programming language that unleashes the power of this engines.

A kingdom for an insightful front-end

But sometimes it shall just run hidden in the background - manipulated by an intuitive, self explaining front-end. A front-end that explains complex concepts to non experts. An interface the keeps it simple, an interface that uses dynamic visualization and offers attractive and explanatory interaction pattens…

A reference for a great combination: Investment Advisory

UnRiskAlpha helps investment advisors leverage their live advice by risk-informed portfolio analytics and simulation.

Its front-end runs on tablet computers and it's using the art of interface building. Certain intuitive actions call the UnRisk instrument valuation, Value at Risk, and value adjustment and margining engines calculating and presenting information.

Yes, it's an art to design such an interface and link it to an engine that may need to perform millions of single evaluations to transform them into insight for better investment decisions.

This smart maths + arts design principle is beneficial for a variety of cross-sectoral innovations…usually of the realistic, real-time, documentary, multi-flow, process and risk control by valuation and data factory, types (in my The Innovation Mesh scheme...devoted to users, like process, manufacturing or financial managers who need insight for better decisions.

How I Think - After All

Some ask me to evaluate (or review) their innovation, their marketing or their business development.

When I did this for the European Commission they came in as unsolicited submissions…and I needed to read them all.

In the definition phase I read the most exciting stuff first

In the first phase, where kind of definition proposals were submitted I acted like a book editor. I usually put the stuff that excited me at the first pile…I liked the idea, but I needed to assess the commercial potential…often those projects were talked up by "innovation centers"…

In the demonstration phase I assessed after hearing

Those accepted for  demonstration phase needed to submit a more comprehensive proposal and defend it in an evaluation meeting. Among them, some that didn't look so exciting before, because of the push by such a "center". I accepted them, because I knew their "advisors" didn't do it to get us evaluators under pressure…they wanted to help leverage a region…

But, there's the danger that you think you must listen mote to those "scouts". I think, I always managed understanding whether the innovation will work and sell and if the consortium is capable of doing it.

But, finally I felt: 500 projects are enough. Evaluation became craft and less fun.

Do things that matter for those who care

Now, I don't need to read unsolicited submissions. I do nothing without individual interaction. I don't need to listen to scouts. When I'm excited about an innovation, I offer to continue.

It's a few building and exploiting a universe of technologies leading to the transformative development of products and fundamental solutions... Symbolic languages with built-in algorithms, implemented by engines, data and communication services and deployment across all platforms enabling high performance solutions that go where its users go.

It's amazing, how wide the coverage really is: in innovation types, usages and users...

A culture of helping

Helping leverage business development is fun again. I now understand the helping tango much better…

UnRiskAlpha a reference for co-creation

UnRisk innovators at risk analytics and multilateral innovators at investment advisory have combined their technologies to build a next generation Investment Advisory system. UnRiskAlpha helps make risk-informed investment decisions. It runs on tablets accessing a blazingly fast risk server.

It took a few months integrating and it will serve a next generation investment advisoryThink it. Build it. It's so exciting.

Design Light Not Lamps

A well-designed building, a well-engineered car or a beautifully configured interior can stimulate the centers of our brains…

The October WIRED UK Edition is called The Design Issue featuring Olafur Eliasson, the multi-award-winning artist…"Art will change the world" he said. Among many other projects, he runs a studio in Berlin with a wide array of lighting used as "tools" for producing certain psychological effects…

I recall, about eleven years ago, I reviewed an innovation project for theEuropean Commission that dealt with design - the project manager, a design professor of the Politecnico di Milano, explained the objective metaphorical: design light not lamps. The project was about principles and methodologies to achieve design-oriented innovation.

In quant innovation this meant: design usages first, then objects,  models, solvers, functions, data…difficult enough, because in complex systems a bottom up approach is the only way to get the required flexibility…

Eliasson's tool box of light bulbs, neon tubes…in Berlin enable this the bottom up fashion. The analogy in quant innovation was a technology stack.

So, you're lucky if you have design methodologies for certain usages and a well designed technology stack providing the tools.

Again, it's worth working more with artists…they can really co-produce answers.

Work More With Artists

Innovators do lab work…searching for a breakthrough, new ways to design, produce, manage, market.... The factory, strives for rationalization…do things of yesterday better, faster and cheaper today. It's difficult to do factory and lab work simultaneously. Factory work often rules out innovation.

But, as an innovator and innovation advisor I wasn't completely resistant fighting uncertainty by rationalization...make more with less.

For many years now, I co-operate with Hermann Fuchs. He, a macro-economist by education, runs a financial controlling advisory firm. His core competency embraces real options…but he's also doing picture carving arts: see Sehfelder

I'm not an artist. But I believe that creativity is a skill that can be learned to some extent. And I believe thinking like artists help us to be innovative and come up with new ideas.

Is there something, like an artists tool kit? Maybe. But more important, they
  • take risk
  • work under uncertainty
  • deal with imperfection
  • deal with critics
  • develop a space where they fill their creations in
Beside the project work Hermann and I meet quite frequently to just shake things up without being bound to concrete projects...  

Don't Do It Alone

If I you force me to put all my experiences into one controlling idea…a few word recommendation for innovators…drumroll... Don't do it alone.

Remember, you want to make systems that matter for those who care.

Don't develop alone

In an agile development cycle you should cooperate to master the complexity of a multi-strategy, multi-model and multi-method system that is inherently parallel, multi-language and platform agnostic…We never had better environments, platforms and tools to manage development by dislocated teams (of different disciplines and skills).

Don't market alone

You want to change. That needs early connections and alliances.  This goes far beyond co-operation in agile development cycles. Find system integrators, re-marketers and other recognized voices who speak for your project in early stages of your development.

When you innovate you choose yourself…and if you're connected, people need you. It's so simple, but it took me years and many disappointments to understand it: Don't Do it alone.

Is It Worth Doing It?

Disruption from new market regimes, the contextual age propagation, the wide access to powerful bottom-up tools…may force innovators to reinvent development and marketing. Even solitaire quant innovations aren't speaking on their own any more.

Marketing is about telling great stories, better development is about telling better stories to ourselves and our innovations ARE stories…

At the beginning it's only you and your ideas...

Hundred thousand hours

It's always the same dilemma: although you have access to great development and deployment tools, market analysis material…are you good enough (financially strong enough) to make use of the opportunity? No, we don't fear the work, we need to face criticism and failure…and stuff like that.

There're constraints. Knowing that your innovation will finally take 100.000 hours you need to deliver a multimillion-Euro-revenue thing.

What helps is making your innovation minimal viable for a minimum viable audience first…a release 1.0 with the highest return at risk…a smaller thing that has a big effect...that sets the stage for the multimillion thing.

Developing without context

There're this people who do everything right with seemingly low effort. How poor must I feel to be forced to make all that analysis, seeking optionality and choosing evolutionary approaches?

You need to build a core of your work…and if you haven't built quant innovations before, and you aren't sure, whether you belong to the rare no-wrong-doers, you might think of developing a technology stack first…technology that isn't devoted to a context at first place.

Borrowing ideas

It's not where you take things from - it's where you take things to, Jean Luc Goddard. What does "borrowing" mean in a framework of complex multidimensional interaction patterns.

A few years ago, The European Commission launched a task force: Open Innovation…it's about an innovation-building culture emphasizing on in-licensing and out-licensing…create seamless interaction and mash-up for ideas…

But this is institutionalized...the same unspoken principle has been established online…

Don't Do It Alone

If you want to change, you need connections and alliances in early stages. This goes far beyond the agile development cycles.

At this time you need to have the big controlling idea that describes how the innovation meets the desires, objectives, requirements…From the controlling ideas we derive our key messages. If we understand them we can put the big takeaway into a few words.

If you promote them, you may find people reference them in their promotions…they're potential development, integration or re-marketing partners…or even the first featured clients.

Find Multipliers

Select partners forming a long lasting bond. How to select them?

On purpose: innovators often serve for the benefit of integrators who serve for the benefit of special market segments….you possibly know that you'll not reach that market segments easily on your own?

Obvious: you may know people or institutions that are recognized voices in your technology corner, selected industrial circles...You want them to be a neutral instance for creating awareness for your innovation.

Don't forget, this points are for early stages…they help you to optimize market risk by understanding the stressors, optionality…

Understanding opportunity 

After you've decided to make the whole thing, the question becomes how to make it interesting for a wider audience. You still want to focus-->stretch-->expand, but you know it's worthy of more than a niche product. But will others feel the same way about it?

Survey the whole landscape for your idea and your innovation. Check how good they match…
Create a map that outlines the ideas others have had similar to yours…is anybody else planning to make it a multimillion thing?

The Big Idea innovation

Are the users of the innovation excited about the subject matter or how-to build complex things or workflows solving progressive problems, simulating a real behavior…?

Big Idea innovations do usually combine the research,  how-to and workflow type all serving to create an integrated experience. It's typically a story and a thriller if it's quantitative…

Right to walk it through The Innovation Mesh.

Will it work and sell according to your expectations, within the constraints, mining most of the opportunities…paying back?

Europe's Bareness



I'm temporarily departing from my usual writing about innovation to write about something I find scaring: the response of "Europe", including my own county, to the refugee crisis.

Photos from the Macedonian border…made me asking: is this the Europe I've been learning at and working for so many years? What kind of society is it that wants to deter the poorest with teargas?

Many argue that Europe cannot afford to absorb the number of "migrants" streaming into our countries. But our countries are rich...they can always find resources for the things that are (more or  less) politically important.

Some say that the incoming "masses" will occupy their space, take their jobs and in general "threaten their way of life". But the number of migrants that have reached the EU this year is less then 0.3% of its population..1% would be 5 Million in the EU and 10 in a village of 1000 people.

Others say, they're only "welfare seekers" who come to take away the benefits we've been working so hard for. But about 65% are refugees fleeing horrible war zones…Syria, Iraq...

International rules say that refugees should apply for asylum in the first safe county they arrive, like Lebanon, Turkey, Egypt...But those countries are already bursting at the seams. Greece and Italy are suffering from concentrations at their peripheral sea regions (islands)…they all need support and a fast plan for a quick distribution, legal migration paths and a quick settlement. I'm supporting an equal distribution supported by a refunding stream from the richer to the poorer EU countries.

Some countries run a strategy of deterrence and discouragement…Is this the response of a society that calls itself enlightened, civilized…? The EU itself behaves like if refugees are someone else's problem?
But also the countries, including mine...

Let's stop this now. Implement a human-rights-based entry and migration policy…Bottom up and top down.

Treating people with humanity always pays back. And it's easy…

Picture from Sehfelder

What's At Stake?

You innovate, and at the beginning you're alone with your ideas…What will be the things that change everything? The breakthrough in what you're building, the capital you need, the promotion that creates the required awareness…?

What's at stake in the innovation? If it's not earth-shattering, shall you find another one? What's at stake for you personally? Do you feel you could skip the project…you're not sure whether you should devote months/years of your life building…? You hear your inside telling you to avoid…?

You fear using your best days to create something that you're not sure whether it works and sells is waste of time? You fear putting months/years of blood, sweat and tears and getting nothing in return?

Wait a little, things may not change over night and it may be a great strategy to focus on the steps. It's about the right scope, the right market segments, right timing and the right financing. Barriers to enter those who care have been marginalized years ago…

Innovators don't play it safe?

Do you want to sell your innovation on proposal? Would you disclose your great ideas in advance? Or just jump over the fences: do it and sell it? Be an innovator for the big returns?

Why not both?

Uncertainty and Optionality

Quantify your innovation projects under uncertainty. Real option valuation tools will help you maximizing the value of your innovation project…they help you to be practical. It's not only one catch…

Innovation Mesh Review

Oh, it was hot here over weeks now…up to 39 C. When I was in Finland I thought I'll swim a lot in its great water world. But the weather and water was quite chilly so I hiked a lot…returned, I thought I'll hike through the woods of the rolling hills north of Linz, but I swam instead…

However, among other exciting projects, I went into the lab again and reviewed The Innovation Mesh 

The Five Leaf Type Clover

What's the first thing that I do, when I asses an innovation…and what's the first thing I recommend an innovator to do? Find out what types the innovation is (is going to be). The types classify the innovation in order to manage the expectations of actors and clients. It's done for books, theaters, films, shows...many years. It's called genres and it's what marketers and promoters put at covers, trailers…

But there's more…innovation types control conventions, obligatory tasks, points of view, needs…and finally methods and technologies.

The Time Type tells you how fast the innovation works related to a real behavior and how well it is synchronized with it,

The Reality Type tells you how far the innovation disrupts our believes. Do they refer to facts, real world behavior, support the problem solving process itself, or provide insights into a virtual, speculative world?

The Style Types classifies the appeal of an innovationare they documentary, literary, graphical or even theatrical?

The Structure Type tells us how the innovation is going to change our lives…do they represent how single or multiple objects/agents flow through single or multiple processes, or do they represent interacting (intelligent) objects/agents?

The Matter Type describes the innovation energy…It's divided into Purpose Type - what is the innovation for and what are it's drivers...and Realization Type - how the innovation works and how it is built.

I've selected quantitative innovations, because they're difficult and thrilling and I know them better…I concentrate on them when going deeper;

The Macro Innovation

Having a clear understanding of the types of a quant innovation, I create what I call The Quant Innovation Mesh a one-page scheme to figure out the objectives of the innovation but much more important: how they are achieved. It represents the macro point of view.

It's my strong believe that most quant innovation need Preprocessing, Processing and Postprocessing and I try to identify the constructors, progressive problems and solutions in each of this steps.

This is my first attempt when walking through a quant innovation. They're important…from the user point of view the constructors act as a kind of a beginning hook, the management of the progressive problems, the middle build and the solutions the end payoff. The management of progressive problems is the tricky part. This is where users may get hung up.

Then I look into the Big Wants and Needs, Point of View, Obligatory Tasks…and finally Conventions and Core Technologies,

On that one-page scheme I get the entire outline of the innovation…and I recommend that innovators do it if they want to self assess their quant innovation.

The Micro Innovation

I've have got the macro view of the innovation. I understand the innovation is working in steps from the begin to the end. It's meeting conventions and obligatory tasks. Can I help to make it better…a classic of the future?

To do that I need the micro view…and the the most important tool is The Quant Innovation Spreadsheet - it goes through the tasks and its columns include Events, Changes, Points of View, Timing, Actors, Worldview and Realization. In The Quant Innovation Spreadsheet I've filled a rough scheme in for UnRisk CM for better readability…but it's usually much more comprehensive.

So why am I tracking the events, points of view, timing…from task to task? Because I want to know whether or not the innovation helps the actors to make the required changes to improve a quality, make a system more productive, flexible…or solve a problem...

Quant innovations have life cycles and come in releases…so it's an iterative work and the schemes help finding changes and even turning points required to stretch and expand market segments for the innovation.

The Big Flow

I've now the The Quant Innovation Mesh and  The Quant Innovation Spreadsheet. Sometimes it may help to put them together by creating an info-graphic. Especially when actors need to work against dangerous events, bad actions or the clock…

Then I describe the required changes (external and internal values) across a task-axis. The upper part of the graph connotes the "positive" below the "negative". The info-graphic may show fluctuations and help showing whether the flows are logically sound, the timing and synchronization points are sound…I see possible  break points that may sabotage the innovation.

Visualizing the entire quant innovation is fun…but there are other ways combining the Macro and Micro getting the Big Picture.

Are You Ready?

You've a great new idea, a project worth funding…something that can't be rejected?  Would you believe me, that this is not enough? To get the attention, your belief, even your proof, isn't sufficient?

You've made something that matters…but you need to reach those, who care.

A new power gains its force from people's growing desire and capacity to participate in an innovation beyond consuming…by sharing, shaping, funding, co-owning…Knowing your (real) options will help you earning the attention and trust you need…from people who need your innovation, but even more important you.

I've now spent half a year to build The Innovation Mesh now at version 2.1. And I spent days to understand the interdependence of macro and micro Wants and Needs…building the spin and the spinal cord of your innovation…

I'm helping quant innovators optimize their market risk…accelerate time to market…and the impact you're making in your markets.

Are you ready for a challenge? Here are my coordinates. Send me an e.mail…we'll find out quickly whether it's worth continuing...

The Quant Innovation Mesh 2.1

Hopefully further improved by simplification.

In this macro view at a quant innovation I've reviewed the objects of desire, external and internal type and value issues and came to the conclusion: it's all about Big Wants and Needs. I want to point out that wants are conscious, giving you freedom, and needs are unconscious, with the little danger of binding you a little too much.

However, wants and needs build the spine of your innovation. Needs are loud. And some wants become needs when previous needs are met. There are macro and micro wants and needs…on the micro level the needs are the spinal cord the fundamental requirements and technological foundations in  quant innovations.

THE QUANT INNOVATION MESH 2.1
For UnRisk Capital Manager

The Type - Realistic, Real-Time, Documentary, MultiFlow, Financial Risk Management, Market Risk, Open Valuation and Data Management Factory

Big Wants - Arming David, conserving capital, setting the stage for successful risk management, leveraging technology, building quant finance skills

Needs - Fundamental quant work and automated risk services...help them expose Risky Horrors and manage them

Point of View Fund management 

Obligatory tasks Manage risk in a regulation and business framework  1. Model validation and robust model calibration 2. Portfolio across market behavior simulation 3. VaR calculations, Tail risk analysis…4. Portfolio re-engineering and -construction…5. Contribution to enterprise risk management 

Preprocessing constructors users, instruments, models, methods, market data, valuation regimes
Preprocessing progressive problems Model, method and calibration risk (technological risk) may add toxicity to instruments and become horrible in interplay
Preprocessing solutions Change valuation regimes as result of model-method scenarios

Processing constructors portfolios, scenarios, simulations…simulation regimes 
Processing progressive problems risk analytics methodologies selection  massive valuation and data management requirements...A portfolio shows unexpected riskiness with respect to certain market behavior, but it's difficult to quantify the influence of instruments, risk factors, observed periods, correlations…     
Processing solutions Comprehensive tests checking such influences…and help re-engineering the portfolio

Postprocessing constructors further, more global risk insight and reporting framework, like for cross business units, market segments or territory analytics
Postprocessing progressive problems Further analytics needs additional data sets and consequently algorithmic treatment...Additional data may be uninformative related to the desired objectives and attribute more to noise than dependencies...     
Postprocessing solutions Data driven techniques or dynamic visualization to curate these data sets

Conventions Valuation and data management are twins. It's built multi-model and multi-method. It's a high performance system. It comes with a web front-end. It comes with the UnRisk development system.

Core Technologies needed - UnRisk CM is built of the UnRisk Technology Stack that needs the Wolfram Technology Stack. UnRisk Financial language is an extension of the Wolfram Language implemented in UnRisk Engines (atop Wolfram Engines) 

UnRisk CM is built as integration of the following technologies: UnRisk FACTORY a web based risk management platform, the Value at Risk Universe and UnRisk-Q the programming power behind UnRisk. Its used by capital management firms, asset management groups of insurances

They all enjoy its automated task processing, extendability, transparency, robustnessintuitive useThat it's ultrafast is seen as requirement. And they are pleased about the level of interactions and their indispensable role in smart decision making…  

Are You Thirsty?

I took 2 1/2 weeks off and went to Finland (SF)…seeking rest. We were in two regions in two different environments: Eveline has posted impressions in her food blog "K├╝chentanz" here, here, here and here.

We didn't much more than hiking, swimming, reading, wine and dine (we drove about 700 km and walked about 120 km)…in the rest it came to my mind that I could simplify The Innovation Mesh even more - emphasizing on wants and under which conditions they become needs (with the danger of dependence). More about this in future posts.

Our last evening in SF, we spent in Helsinki...having dinner at the Ravintola OlO…and, surprise, enjoyed the best meal we ever had…a memorable journey of twenty dishes. And we've had great meals at Le Calandre, Padua, Gordon Ramsay, Chelsea, Pierre Gagnaire, Paris, El Cellar de Can Roca, Girona and more Michelin 3 star eateries before.

OlO, IMO, meets what I understand as UnCooking…getting a bigger picture of cooking. Find the "right" route at the pleasure/nutrition map. Their cuisine doesn't need a kitchen lab, but cooking excellence and "taste precision". They extend "nose to tail" for meat to "fruit to stalk" vegetable cooking. They do not put much meat or fish at your plates and not so few ingredients stay raw, but they use constructors embedding them perfectly into cremes, light sauces…even wrappers.

The first reference of this type of Scandinavian cooking has been given by Rene Redzipi's Noma, Copenhagenbut this looked more theatrically directed, IMO.

OlO people (the team is professional, but relaxed in the best sense) seem to be thirsty enough. They don't need "badges". Thirsty enough to learn and do the work. It's amazing.

They've only received one Micheline star yet. Why? Firstly, Micheline represents the "tyranny" of a French style cuisine (leading to a provenance paradox) and secondly they hesitate to kill the idol of tradition…

OlO ist a metaphor for innovation, a reference of doing today, what we want tomorrow...instead of doing the things of yesterday better today. To do that you need enough thirst. It doesn't matter, whether you are a chef, a designer, a programmer…thirst is about learning, but you can't learn it. If your intent is to  make things that matter for those who care…you're thirty enough.

Edit: in German we use the word Wissensdurst (thirst for knowledge)

And here some photos of the meal at OlO.

Job Killers or Partners?

More than forty years ago, I've made my first step into the "Blue Tower" of Austria's largest industrial enterprise, home of the "Electronic Data Processing" department. An algebraist by education, I was hired to establish a "CNC machining" software development group.

Automation or Augmentation?

After that first step, I've built software systems automating machine tools, robots, assembly systems…and finally whole factories. In the industrial evolution: static-->mechanized-->electrified-->computerized-->cognitized-->connected, I've started in the early stage of computerization.

Automated factories produced distinct items faster, cheaper, preciser...with much less people, but automators acquired new skills to leverage technologies. In the mid 80s I've managed about 100 mathematicians, computer scientists, manufacturing experts…

Our work has displaced workers, but also augmented the demand for skilled labor at the user as well the builder side.

Today, as AIs encroach on knowledge work, it's hard to see how humans will remain employed in large numbers.

Although this is a political issue, it's my strong belief that avoiding an antisocial polarity, future work needs to become more hybrid, life-long education needs to be emancipated from schools, teachers and curricula, weekly working time needs to be reduced and work life stretched...by reframing the use of intelligent systems as augmentation.

What kind of positions can they take to empower, enrich...jobs of knowledge workers? Demanding but not killing?

Super-Brain or Collaborative AIs?

25 years ago, I've conducted my first AI project and I know, the progress in AI is incredibly fast.
Since then I've managed machine learning projects for metal forming, ski production, paper making, printing, medicine…we've even made our own multi method machine learning framework…with crisp and fuzzy decision techniques, ANNs, kernel technologies…represented in a symbolic programming language.

Companies as Google, Amazon…want to create a channel between people and algorithms...we just need tot rebuild our systems by massive inherent parallelism, massive data and better algorithms they say…AI that is driven in large nets will cognitize things…our thinking will be extended with some extra intelligence?

Collaborating with smart machines, we can learn how to manage difficulties and even learn more about intelligence.

Agreed, but I talk about AI as a set of techniques, from mathematics, engineering, science…not just a ubiquitous post-human species.

I believe in the intelligent combination of modeling, adaptive calibration, simulation…with an intelligent identification of features. The storm of parallelism, bigger data and deeper ANNs alone will not be able to replicate complex real behavior.

We need to continue making knowledge computational and behavior quantifiable, but even more important, find new interaction paradigms between intelligent "Silicon" and us.

Innovations Supporting Career Steps

I've developed The Innovation Mesh as a diagnosis scheme assessing whether an innovation will work and sell. It adds emotional factors. I've introduced The Quant Innovation Spreadsheet and The Quant Innovation Mesh for the assessment of systems that require quantitative treatment and filled them in for UnRisk Capital Manager...with references to UnRisk Quant to explain the differences…especially through the lens of the actors. What makes the innovation thrilling is the dominant question.

But, with an augmentation mindset actors may come to see innovations as (sparring) partners in doing the difficult work and promoting their career.

In which possible steps?

Four UnRisk Ways to Augment Actor's Strength 

Let me construct an "UnRisk" developed from the UnRisk Technology Stack: the UnRisk Financial Language, implemented in the Valuation-, VaR- and Exposure/xVA Engines, the UnRisk Data Framework, Interface Builders and Deployment Services. it's built as solution and development system in one, covering a wide range of deal types, portfolio and scenario instances…all practical details mapped…for usage from the front office to accounting.

What possible career steps can an actor, a financial expert, consider…driven by the values they can most likely add?

Climb - a strategy of, say, a front office expert...heading higher management grounds, avoiding the plumbing, to become capable of more big-picture thinking striving for better risk-informed deal decisions. For her, UnRisk will play the role of a digital risk quant and manager.

Dive In  - a strategy of, say, a financial engineer structuring new deal types, funds…exploiting UnRisk's symbolic Financial Language and inherently parallel and platform-agnostic engines building new valuation systems and tools swiftly. For her, UnRisk acts as a library quant providing foundations that are comprehensive and bank proof.

Surf - a strategy of, say, a financial advisor…helping non experts to understand complex financial concepts. They may even head a position where they help their financial institution to find new offers for new clients and define competitive game rules…For them, UnRisk will act as a deal composer and simulator supporting smart user interfaces enabling simplicity but explanatory depth.

Leap Forward - a strategy of innovators, who want to build the next generation of quant finance products for their own markets. They will exploit UnRisk's Financial Language, Engines and Services, stretch and expand them in co-evolution with their product life cycles. They could even build UnRisk atop UnRisk.

A lot of brain work cannot be coded (machine emotions and machine thinking will be different)…actors need to decide in which direction they want to enhance smart systems.

If I once walk through the city with my digital aura attached…an information may pop up: "Herbert, hi, I'm your smart portfolio…I've engineered an instrument mix that fits perfectly to you risk appetite, the probability to win is…your log loss expectation is…my adaptive Kelly calculator recommends a revolving investment of x% of your wealth…with 97% confidence...".

It'll be still realized by preprogramming machines…when will machines learn to program themselves?

And we better don't think like machines to enable machines to think like us.

However, even if the path beyond automation goes to augmentation, there are big challenges waiting for the politics.

 Parts of this post's been inspired by this article in HBR, Jun-15 issue.

Quit What's Blocking Progress

I've just finished reading This Idea Must Die - Scientific Theories That Are Blocking Progress, the 2014 Edge question. What scientific idea is ready for retirement (so that science can advance)?

About 180 answers of visionary thinkers are collected in the book. The Big Bang was the first moment of time. Entropy. Infinity. Cause and Effect. Essentialism. Free will. Cognitive agency. Robot companions. Nature = Objects...to select a few. NN Taleb takes down the standard deviation (again) and Emanuel Derman questions the power of statistics (I've read the books of both motivated by my engagement in quant finance).

Ideas that block progress

But what I'm interested in more general: few radical innovations are developed without first abandoning old ideas and systems. And some ideas do really block progress:

One size fits all - in-search-of-perfection seduces us to select frameworks, models, methods, programming languages...that fit "everything". But what we need is multi-model and -method approaches, hybrid, multi-paradigm programming…down to platform-agnostic systems.

Data Science replaces everything - the opposite is true…it's hard to work in the data salt mines and the danger of being fooled by noise is ubiquitous. Intelligently combining modeling and data driven methods is the right way to go.

Tightly coupled complex systems - A complex system can have untended consequences and tightly coupled means there is not enough time to react to them. Diversify and decentralize your system, make it agile by increasing its adaptability and optionality. Make intelligent independent system components that are accurate and robust, but flexible. Let them co-exist and co-evolute.

Product = technology - programming languages, engines that implement them, data frameworks, deployment systems, clouds…are technologies enabling many transformative developments of products,

AI = neural nets - first, the expert system thinking of AI died, then the idea of "Artificial Life"…now we think: because our brains have neurons AIs are well represented by neurons too?  IMO, AIs are built of a set of techniques of mathematics, engineering, science…not a post human "species". Artificial neural nets will be of great help in this multi-factor approaches. Behavior must ve quantified and knowledge must be computational.

Symbolic (exclusive) or numerical computation - both…the mathematical discipline is asymptotic mathematics: us symbolic constructors and builders to get models of good nature for numerical solvers and use symbolic computation for dynamic result interpretation.

In short, forget the (exclusive)OR, believe in the AND effect.

Risk's Not Easy To Understand

I like reading the Eight to Late Blog. It's at my "As Read At" list, I walk through almost daily.

The latest post is about The Risk - a dialogue mapping vignette - about a workshop on the theme of collaborative problem solving using dialogue mapping as tool with a special notion: Issue Based Information System.

Risk or danger?

It's insightful to see how the tool helped creating the map by team discussions evolutionary...but there's one thing: "Schedule is too tight" is not a risk, but a danger. How I turn it around, I do not find a realistic opportunity in it.

Optimal risk revisited

"Build a technology stack to master tight schedules of future projects..." is a risky project. If you run out of financial capabilities before anything applicable is done it kills…But if it's done it creates a lot of opportunities: do things you couldn't do without, applying it in fields you haven't thought about before, more flexible licensing, pricing and return valuing…and options: minimum viable releases for minimum viable usages for minimum viable clients…in an evolutionary development approach.

Risk is a subject of common misconceptions. Remember, managing risk means arranging things that make opportunities and danger a positive contribution. If things are quantifiable, you may be able to optimize it.

Cutting off opportunities from "risk" creates fear

The workshop was a great explorative learning experience…I've no doubt. What I want to point out: the deep understanding of the principle factors influence the mapping of the conversation about them.

The philosophical background of this is that things "change" in discussions if their weave of formal representation and content change. If risk is bad becomes the common sense (a formal "law"), we stop innovating.

It's done before? It's too early? If we do it, it may be the last time? What will the market say?…are all fruit of risk aversion fed by mistaking risk and danger (loss).

My Personal Navigation System

This post has again been inspired by Shawn Coyne's Blog

The process of assessing an innovation can be overdone. Especially when it's driven by essentialism or perfection. There's no metrics and things change rapidly…and many innovations are about the new for the now.

So, if I walk an innovation through a scheme, say, I'm Innovationmeshing systems like Opexar, after UnRisk,  I do most probably come to a point where I hit a barrier. It's a bad "I shouldn't have started this" moment. Stuck in an underwood? Or just weeds?…What to do? Shall I just stop go back and seek a new path? Or fly out?...Shall I improve The Innovation Mesh and start again?…or just "burn" the barrier down?

Real option valuation isn't identical with financial option valuation…real options and their underlyings are usually not traded…

It's so many possible directions, where am I on my assessment map?

My Personal Navigation System

Why I'm innovationmeshing UnRiskOpexar...?  

They're quant systems that are solutions and development systems in one…First I want to test my tools and then I want to use the insight and results to help innovators in the field of business and finance leverage their businesses.

What shall reference Innovation Meshes be fore?

They're results of the assessment tool applications and shall show innovators how those, who attack complex problems in certain fields make thrillers…building systems that are solutions and development systems in one.

With reference I do not mean "popular" but "great"

 Who do Innovation Meshs benefit?

Innovators, innovation marketers, marketing advisors (my competitors), investors, public innovation program developers, politicians…Understanding innovation is a skill.

Where to go?

First, I'll do more lab work assessing existing innovations and publish results in agreement with the innovators. Then, I'll improve The Innovation Mesh schemes and tools and publish further insight and results.

When will it be finished?

I feel that I'm quite close focusing on the segment of above: business and finance / quant innovations that are solutions and development systems in one.

But, because I'm confident that the principles are valid for other quant innovations (in engineering, automation…) there's more work to do. So much, that I can't do it alone.

Innovators - Racers At Critical Paths Or Master Builders?

Innovation projects are complex - people are working on many activities that are dependent on others.

Innovation projects have a Critical Path?

The project network - you have the work break down into tasks...a duration for each activity, dependencies and milestones? The longest sequence of tasks in the project network that are dependent and cannot be compressed is the Critical Path.

But do the organizations always know what that means?

The problem is, innovators are usually excellent and shall be asked…but people on the critical path must not be interrupted…because delays on the critical path are delays at the very end of the project?

A little analysis tells us who is on the critical path. And they should wear "I am on the critical path" T-shirts or caps…and team members without should ask them: "can I do anything for you?"

Beware...

Innovation projects must not be linear

As we know from The Innovation Mesh they span "objects" in a multi-dimensional parameter space.

In particular, innovations that require computation have various objects of desire, a clock, flows, events, transformations, massive information requirements…most of the problems suggest a functional decomposition and the bottom up composition of functions and tasks.

Innovators think like master builders?

Walking an innovation through The Innovation Mesh needs lab work on the micro level. If this is done, the macro view emerges…but you may need to go back...

Doing this it comes to mind that key developers of quant innovations should think like master builders (of, say, a hotel complex or even parts of a city)

Apply a general procedure:

Questions - What are the desires, requirements, needs? What are the conventions, rules, state of the art? What are the controlling ideas, models, methods and critical implementations? What are the constructors, building blocks?...finding questions guides us towards ideas.

Frog and  Bird Views - iteratively zoom in and analyze the concrete details and zoom out and see results in the context of behavior and profiles.

Elimination - don't forget to eliminate features and capabilities that will knowingly lead you to unclear outcome. If you have eliminated too much you will find a better way...

Make - the concrete implementation is a a way to do practical analysis and verification. If you have great building blocks the final solution will be result of an evolutionary approach.

A critical path gets another meaning when applying evolutionary prototyping...

UnRiskers unrisk

Programmers program, teachers teach, swimmers swim…

Do UnRiskers unrisk?

Yes, but not in the sense of removing risk blindly. It's about how to make danger and opportunities a positive contribution…always in the regulatory framework.

UnRiskers know that there's optimal risk and they know that diversification does not always work and they also know that other "deterministic" optimizers, like the Kelly Criterion, need some deeper analysis.

And they know that hedging becomes even more difficult if more info of the individual market environment is known. To unrisk might require reducing sensitivity or volumes - but that are often conflicting objectives.

What investment and risk mangers enjoy using UnRisk: getting insight by comprehensive scenario analysis...the ability to shift multiple market and risk factors simultaneously…some predefined and automated, like in the UnRisk VaR Universe.

The robust UnRisk Engines deliver the values, risk spectra, cash flows...blazingly fast, delivering results of the required massive valuations in time. Portfolio across scenario simulations are performed automatically, inherently parallel...

The complex new regulatory regimes of central counter party and central clearing require the massive calculation of value adjustments, capital storage requirements (CVA/DVA/FVA…KVA), initial margin…UnRisk Exposure Engines need much more portfolios scenarios…

You may end up in multimillion single valuations to get support for a few decisions.

A bigger picture of risk

To understand the possible butterfly effects of, say, regulatory regimes you need quantitative treatment to a maximum extent…many results that can be aggregated, evaluated, visualized...

It's what UnRisk has in mimd: to unrisk...get a bigger picture of risk - not just remove it.

When the regime changes you need to unlearn, because the rules of risk management have changed. And your quant finance system need to manage the change.

Understanding risk you need to understand money, duality, boundaries and optimization.

The controlling idea behind "unrisk"

Our abstract concept is quite simple: nested instrument groups and scenario groups moving over time with events…That empowers structuring, portfolio, scenario and test building.

To unrisk means understanding the sensitivities of all relevant factors and optimizing risk in regimes where the "conditions" are known and relatively safe and remaining dangers are cleared out.

To unrisk means also to analyze the tail risk…calculate expected shortfalls, apply power laws to get distributions...

There's no such word in the dictionaries…but it got a kind of operational semantics by using UnRisk. 

UnRiskers unrisk, as UnMarketers unmarket… 

It was risky, when we decided for trademarking UnRisk, 2001. 5 mathematicians sat together deciding. The owner, the CEO, the product manager, the key developer and myself (business developer). It wasn't me, who proposed it...but I knew immediately: it  will contribute to a changed view into risk. A mathematical view.

It took me 14 years to understand that unrisk also means the thrilling story of managing risk by UnRisk.

Optimal Market Risk

In my previous post I've introduced RCD Marketing. I've written about the two-sidedness of risk Here.

Let me explain, why this will influence my future decisions in innovation marketing (advice).

The risk of a blast furnace

Iron is produced from iron ore, coke and additional materials (magnesite, dolomite...to decrease the melting pot, control viscosity ...). Among the processes of iron production, the blast furnace process is still the most prominent one.

A modern blast furnace produces up to 5 mio tons of iron / year and can be operated continuously for up to 10 yeas before shutdown.

To control the process you need to model various phenomena, like flows of iron ore and coke, liquid due to melting, gas - from bottom to top, energy - heat conduction and convection, mass and chemical reactions.

As the iron ore sinks it is indirectly reduced: Fe2O3 --> Fe3O4 --> FeO --> Fe (a process of improving material quality for the purpose)

BTW, the typical sitze of the problem: 40.000 spatial unknowns per scalar component of  20-30 unknown functions (temperature, max concentrations, velocities). The equations are of the reaction-convection-diffusion type and providing the required accuracy at speed you need to choose the mathematical solvers carefully.

To maximize the output you want to operate the furnace ambitiously but you must avoid that the liquid iron and slag erode the lining too early or, worst, melt through the shell of the furnace (if this happens, you better run).

With this respect, the risk of producing iron is a cost for securing the process, but also a strategic asset…it can be quantified, because of technical and economic modeling and simulation….consequently, optimized in the mathematical sense.

The risk of life

A good life? There is a widely expressed emphasis on the maximization of a benefit (health) and not the optimization of a risk. How to enjoy life, but avoid severe diseases? How much sport, how much mobility, how much interaction, how much celebrations, how much wine and dine…. how much medication…?

Yes, it is much easier to do risk management in quantitative fields - if dangers and opportunities are not quantifiable, we have limited ability to control them.  But you're lucky if you're able to make danger and opportunities a positive contribution.

The risk of marketing

It's quite similar...it has the dilemma in it: is marketing risk a cost for securing a business or finding the optimal input fraction of an overall financial potential. This are the poles of the dilemma. Especially related to innovation marking where uncertainty dominates: predictability vs adaptability, control vs agility…?

I've introduced the reaction-convection-diffusion metaphor to marketing because it helps to optimize the market risk qualitatively…you put (the story of) your innovation into the pot (market)…it will

  • react with worldview, states, solutions…in market segments related to its change potential and requirements
  • circulate by convection at borders of segments with gradients in expectations, knowledge, persuasion
  • diffuse through the market promoted by multiplying actors

Marketers can observe the "heat and speed" and control the process by adjusting access, information, education…avoid that the "pot" freezes the story or boils over with negative reactions.

Your innovation works and sells in principle…The Innovation Mesh tools helped to asses it…the reaction-convection-diffusion marketing metaphor will help optimizing market risk...

Reaction-Convection-Diffusion Marketing

The reaction-convection-diffusion model is one of the most frequently used models in science, engineering…and quant finance. It describes how the concentration of something distributed in a medium changes under the influence of reaction, convection and diffusion. It's a partial differential equation.

In a nutshell, reaction is a process that results in a conversion of something, convection refers to a movement of something in a medium, diffusion is the movement of something from a situation of high concentration to a situation of a uniform distribution. Obvoiusly, the names come from phenomena in physics, chemistry…but, some derivative pricing and risk models, like interest rate models, are represented as reaction-convection-diffusion equations as well.

The big picture of marketing

I borrow this principle…for marketing an innovation project to (innovator's) organizations, partners…clients.

You have an idea of an innovative project…you need to convince peers, investors, potential clients…how can you get them to understand, accept and integrate? Its marketing. And it's abut answering key questions.

Reaction - how much does your innovation require behavioral change? To what extent are those changes in disagreement with the worldview of your target groups? Is the story of your innovation (not so much the facts) so compelling that you can minimize the mismatch that effected the acceptance of the change?

Convection - is your innovation demanding to be talked about? Do your ideas spread with your target groups without your interventions?

Diffusion - do you bring your core ideas to early adopters and empower them to to move through the organizations to the majority?

No, I don't strive for a marketing theory of everything. And yes, in the details internal and external marketing need different actions…and no, I'll not try to create a RCD PDE model for innovation marketing.

But, I want to persuade you to walk through this questions carefully, before you decide for measures of operational marketing (down to promotion).

This post has been inpired by Seth Godin's marketing to the organization