Philosophy and Science for the Third Millennium
The Method of Moments
An Essay by Christopher Bek
SummaryThe Method of Moments delineates dimensional deconstruction and reconstruction combined with fractal analysis as the fundamental method of riskmodeling employed by The Bernoulli Model.
There is no more commonplace statement than the world in which we live is a four-dimensional spacetime continuum.
People only see what they are prepared to see.
is merely the art of generalizing and choosing.
Descartes had a very clear idea of the type of reader he was trying to reach—that of the cultured public—the ladies of the salon rather than the pedants of the university.
violent reaction to the recent development of modern physics can only be
understood when one realizes that the foundations of physics have started
moving—and that this motion has caused the feeling that the ground would
be cut from science.
The Bernoulli Form elucidates the notion of Platonic Forms in describing how a motley crew of Forms—including Delphi, forecasting, integration, utility, optimization, efficiency and complementary—come together to form The Bernoulli Model.
The Method of Moments
The Efficient Frontier examines the notions of God, option theory, portfolio theory, faith, reason and Arab math—finally arriving at the inescapable conclusion that all roads of sound decisionmaking lead to the efficient frontier.
The Unpardonable Sin charges all honourables and doctors in Canada with heresy, child abuse and the unpardonable sin that Christ spoke of—which is the deliberate refusal to follow the light when seen.
The Uncertainty Principle contrasts Einstein with Heisenberg, relativity with quantum theory, behavioralism with existentialism, certainty with uncertainty and philosophy with science—finally arriving at the inescapable Platonic conclusion that the true philosopher is always striving after Being and will not rest with those multitudinous phenomena whose existence are appearance only.
Twenty-Eight is a Perfect Number argues that the Canadian Government is systematically violating its citizens and—in that I am the unchallenged Canadian Sovereign and have formally requested intervention from the United States Government—the Canadian people now have the means and legal right to remove the Canadian Government.
A Formal Patient congratulates Alberta Health and Wellness for insisting on the accountability of due process in declaring individuals to be formal patients—and argues that I am being considered a formal patient as the result of an absence of due process elsewhere in Canada—and that I should not be considered a formal patient but that I should be declared disabled on account of being outside the cave of behaviorism.
Singularity identifies the trigger of the looming paradigm shift from the three-dimensionally conscioused Everyman to the four-dimensionally conscioused Superman as the 1935 Schrödinger's Cat though problem—which proves that consciousness is real.
The Great Cosmic Accounting Blunder compares the two physical fixedpoints in the universe—lightspeed and Planck’s constant—and argues that we have been guilty of double counting up until now and that in fact there is but one fixedpoint—which, as it turns out, is the boundary of the universe.
The Unified Field Theory counts down the Euclidean hits from five to one in categorically nailing the vast majority of this little thing I like to call cosmic pi. At this point in spacetime I would like to pay special tribute to my excellent wingman Albert Einstein (1879–1955).
Closing the Liars Loophole identifies the malignant cancer within the healthcare system and society as the outwardly focusing behavioral psychological model, which denies the existence of consciousness—while the inwardly focusing existential model makes consciousness and the soul primordially important.
1975 the Polish mathematician Benoit Mandelbrot posed the question—How
long is the coastline of Britain? Appealing
to relativity, Mandelbrot pointed out that it depends on one’s
perspective. From space the
coastline is shorter than to someone walking because on foot the observer is
exposed to greater detail and must travel farther.
According to Mandelbrot, when the shape of each pebble is taken into
account, the coastline turns out to have infinite length.
He proposed a system for measuring irregular shapes by moving beyond
integer dimensions to the seemingly absurd world of fractional dimensions.
Mandelbrot used a simple procedure involving the counting of circles
to calculate the fractal dimensionality.
The coastline of Britain has a fractal dimension of 1.58 while the
rugged Norwegian coastline is 1.70. Coastlines
fall in between one-dimensional lines and two-dimensional surfaces. In the three-dimensional world the fractal dimension of
earth’s surface is 2.12 compared with the more convoluted topology of Mars
estimated to be 2.43.
A fractal is a mathematical Form having the property of self-similarity
in that any portion can be viewed as a reduced scale replica of the whole.
Fractal structures exist pervasively in nature because theirs is the
most stable and error tolerant. The
fractality of clouds is evidenced by the fact that they look the same from a
distance as they do up close. Galaxy
clusters, earthquakes, mountains, snowflakes, lightning, and broccoli are
just a few of the naturally occurring phenomena exhibiting fractal
qualities. The power of fractal analysis lies in the ability to
capitalizes on self-similarity across scale by locating an eerie kind of
order lurking beneath seemingly chaotic surfaces.
Owing to its mathematical basis, fractal analysis is scalable across
and between applications.
Moments in Time. While
the coastline conundrum involves fractal analysis for measuring the
complexity of geometrical shapes, the British hydrologist Harold Hurst
(1900-78) employed fractal risk analysis to manage the Nile river dam from
1925 to 1950—with the goal being the balancing of overflow risk against
the risk of insufficient reserves—a job description not unlike that of a
treasurer. Hurst initially
assumed the influx of water followed a random walk, although he abandoned
that assumption in favor of a more robust fractal process.
A random walk or Brownian motion is a statistical process that has no
memory and is represented by the normal distribution.
The fractal process is a superset of the random walk where the
fractal dimension ranges from zero to one—with a value of 0.5 being the
normal distribution. Hurst’s
work on the project led him to examine 900 years worth of records the
flood-weary Egyptians kept. Capitalizing
on self-similarity, he analyzed data under all available time-scales from
phenomena including river and lake levels, sun-spots and tree-rings in
calculating a fractal dimensionality of 0.75.
and Singularistic Science. In normal science a singularity is a
breakdown of spacetime such that the laws of physics no longer apply.
Examples of singularities include the big bang, black holes and one
divided by zero. What
physicists like Stephen Hawking who developed the concept failed to realize
is that a breakdown of spacetime is just another way of saying a boundary of
spacetime. Thomas Kuhn
(1922-96) was a physicist and historian concerned with the sociology of
scientific change. In his 1962
book The Structure of Scientific Revolutions he defines the term
paradigm shift as a transformation taking place beyond the grasp of normal
cognitive abilities. Scientists apply normal scientific methods within a paradigm
until the paradigm weakens and a shift occurs.
Most people eat up normal science with a big spoon, but do everything
possible to avoid the intense metaphysical pain of paradigm shifts.
Hawking once said that a singularity is a disaster for science.
But what he should have said is that a singularity is a disaster for
normal science—but normal for singularistic science.
and Singularistic Distributions. The range of the fractal process
maps isomorphically to a family of distributions known as fractal or stable
Paretian—named after Vilfredo Pareto (1848-1923).
The three explicit fractal distributions are the Bernoulli (ie. coin
toss), normal and Cauchy—relating to fractality of zero, 0.5 and one,
Bernoulli, named after James Bernoulli (1654-1705), converges to the
normal distribution when the number of coins becomes sufficiently large.
The Cauchy, named after Augustine Cauchy (1789-1857), is interesting
in that it possesses undefined moments thus making it singularistic.
The first four moments of a statistical distribution are the mean,
standard deviation, skewness and kurtosis—with kurtosis being a measure of
both pointedness and length of tails. The
extremely long tails of the Cauchy give rise to its undefined moments.
The mean never converges because a value sampled from the extreme of
the tails shifts any previously established mean.
The Cauchy is related to the normal in that it is a normal divided by
a normal. And one can easily see this in Excel by simulating a normal
sample with the formula =normsinv(rand()).
If the simulated denominator is very close to the mean of zero then
the value of the Cauchy shoots off to the Moon.
Perfect Actor. I developed the four-moment Camus
distribution—named after Albert Camus (1913-60) for his desire to be the
perfect actor—as a one-size-fits-all distribution to model the full range
of the fractal process. So
whereas the basic Bernoulli has a kurtosis of zero, the normal has a
kurtosis of three and the Cauchy has infinite kurtosis—the Camus with a
fractal dimensionality of 0.75 has a kurtosis of six.
Depending on the fractality, the Camus interpolates between the
Bernoulli and the normal or the normal and the Cauchy.
The normal distribution with its fractality of 0.5 translates into
scaling according to the square-root-of-time.
Going from a one-month valuation period to a one-year valuation
period under a normal assumption results in a scaling factor of 3.5—ie.
12^0.5—while a similar calculation with a Camus distribution and a
kurtosis of six produces a scaling factor of 6.4—ie. 12^0.75.
The rationale being that with higher kurtosis comes a greater
potential for larger jumps.
Riskmodeling. The Hurst Model involves components characterized by
intertemporal dependencies and The Markowitz Model represents portfolio
analysis involving components characterized by contemporaneous dependencies.
The Bernoulli Model is a superset of both that includes intertemporal
riskmodeling as an approach representing data characterized by both
intertemporal and contemporaneous dependencies—such as energy prices and
foreign exchange rates. The
word stochastic comes from ancient Greece and is defined as skillful aiming.
While the basic stochastic process is the random walk, intertemporal
riskmodeling expands along a multitude of moments and dimensions.
The random walk process bifurcates into the Camus distribution and a
mean-reverting process. And rather than being a static number, the mean itself is a
process composed of long-term signal and short-term wave elements.
The final element of noise is determined by the distribution and
correlation parameters—which are themselves mean-reverting processes known
as garch—also composed of signal and wave elements.
In summary, the intertemporal riskmodeling process deconstructs
historical data into correlated signal, wave and noise—each of which is
separately forecast—and then reconstructs within a Monte Carlo simulation
environment in order to produce the forecasted portfolio distribution.
The Bernoulli Moment Vector. The Markowitz Model uses the mean to represent the forecast or reward and the standard deviation to represent the dispersion or risk—thus laying the groundwork for risk-reward efficiency analysis. The basic method of moments is a simple procedure for estimating distribution parameters. The mean is the first moment of a distribution and is calculated as the average value—and the standard deviation is the second moment and is calculated as the average deviation about the mean. Intertemporal riskmodeling simply expands on this basic concept. The Bernoulli Model also employs an expansion on the method of moments with the Bernoulli moment vector (ie. BMV) relating to the portfolio distribution. The zero moment in the BMV represents exposure and is simply the intuitive concept of initial value exposed to change. The fifth moment is VaL and represents a utilitarian translation of reward and thus an expanded definition of reward. The sixth moment is VaR and represents the confidence level and thus an expanded definition of risk.
Conclusion. The term Renaissance means rebirth and described the era following the medieval period lasting from the fourth to the sixteenth century. It was René Descartes (1596-1650) who broke the logjam by founding modern philosophy, modern mathematics and the Cartesian coordinates—all based on the belief that one should formulate a simple set of rules and follow them. The method of moments represents a simple set of rules for advanced forecasting and efficiency analysis. Self-similarly, the BMV represents the new Cartesian coordinates of the four-dimensional space-time continuum. One might then pose the question—How long until the logjam breaks and the scientific management Renaissance emerges?