The Medium of Contingency

Philosophy Seminar

Abstract

The key thesis of this presentation is that the financial market can be thought very simply, provided it is thought deeply enough. To do so necessitates an inversion in our schema of thought, beneath the level where probability and possible states are conceived.

Probability trees are only good for algorithms and require that the nodes are connected and the probabilities sum up to 1. With the invention of money and contingent claims we possess a superior technology. The contingent claim also features a schedule; however, being a materially written contract, it encodes its possible disappearance as its reverse side. The whole market occurs because of this exceptional clause, which probability can never cover. As a result, the market price is itself a radical alternative to statistics.

Price series are not time series. To write a contingent claim and to trade it is literally to be situated in the middle of the event triggering it. Events take place; they don’t take time. Writing is the technology addressing the event outside of chronology and the market is the medium of contingency. They both recognize that time, although unavoidable, is unessential.

About Elie Ayache

Elie Ayache is initiator & CEO of the financial software organization, ITO33. He is author of The Blank Swan (Wiley, 2010), The Medium of Contingency (Palgrave, forthcoming) and has published many articles on the philosophy of contingent claims.