From Hedge Funds To Skype, Collapses Prove Unavoidable
from the crashing-down dept
Is there a connection between the recent meltdown at quant funds and last week's outage at Skype? Nick Carr makes the provocative argument that both events are the result of what happens when algorithms fail to anticipate behavior that is somehow out of the ordinary. In the case of quant funds, their models failed to anticipate the market's wild volatility, whereas with Skype (if you believe the company's official explanation), the glitch was the result of mass reboots taxing network capacity. Interestingly, both Skype engineers and hedge fund managers were heard using the phrase "perfect storm" to describe the sequence of events that lead to their respective collapses. Of course, as hedge funds learn every few years, these perfect storms that are mathematically supposed to occur just once in a thousand years, seem to happen quite a bit more often. The same goes for any network that suffers an outage despite the best laid contingency plans. The problem is that it's difficult to craft an algorithm or a model that's robust during 'normal' times and abnormal times. In finance, one hopes that the profits are big enough during the good so that you can survive the occasional mess. The one problem, of course, with the comparison between hedge funds and Skype is that Skype's explanation doesn't ring particularly true. The connection between Microsoft patches, mass reboots and the network collapse seems tenuous at best. Thus, it's entirely possible that this particularly outage had nothing to do with abnormal crowd behavior. Still, as the surprise outage at 365 Main demonstrates, it's difficult, if not fully impossible, to completely inoculate oneself against adverse events.Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.
While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.
–The Techdirt Team
Filed Under: algorithms, hedge funds, quant
Companies: skype
Reader Comments
Subscribe: RSS
View by: Time | Thread
Here's what hedge fund managers learn first - hedge fund managers don't lose their own money - their investors do.
Their math doesn't guarantee anything in the real world, as has been proven many times. Just another Wall Street scam.
[ link to this | view in chronology ]
Sony's Latest DOA product
What will happen, though? Sony will insist on selling music only through its own outlets at exorbitant prices, and nobody will buy it. Sony already failed in their earlier tries like the "Connect" project, ATRAC3 software, and "memory sticks".
http://www.yomiuri.co.jp/net/news/20070821nt09.htm
http://www.itmedia.co.jp/news/arti cles/0708/20/news038.html
[ link to this | view in chronology ]
[ link to this | view in chronology ]