QBism

*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc/*

*/Follow us on Twitter/* [1]

Just finished a very interesting article on QBism – Quantum Bayesianism –
by Hans Christian von Baeyer (ScinentificAmerican.com, June 2013)
http://www.scientificamerican.com/article/wave-function/ [2].  In the
article the author describes QBism which simplifying (greatly simplifying)
states that the wave function of particle physics is a mathematical tool –
nothing more.  Thus arguments about wave-particle duality (is a sub-atomic
particle a wave function of probabilistic energy, or is it a particle) have
no validity.

I believe that in risk management we often give more physical reality to our
mathematical risk models than we ought to.  As an extreme example that I
will use solely for illustration, many derivative textbooks talk about the
volatility skew puzzle of option pricing, as if volatility is a physical
trait that a financial asset should be self-aware of. 

Perhaps to make it a little more concrete, how often has a risk manager (or a
trader) said that they think vol (volatility) is going to increase?  They
say it in the same way that they might say that they think it might rain
tomorrow.  Volatility however is a mathematical construct.  Rain is a real
physical object.

Perhaps it is time for a bit more QBism in risk.


[1] https://twitter.com/rsdsolutions
[2] http://www.scientificamerican.com/article/wave-function/