Things I've been thinking about

"Liquid" is essentially synonymous with "popular" -- possibly why I'm sure there exist secretive, quant-run hedge funds that focus on using their models for liquid securities on the markets for illiquid versions (cf. Emanuel Derman). They can get a "fair value" and determine what kind of arbitrage exists in markets that are unpopular, where there are not enough people to guarantee that every instrument is fairly priced in an un-tradable time frame.

Starting to curry to Nassim Nicholas Taleb's writing again. I had skimmed his book something like six or eight months back but failed to appreciate how closely aligned his world view is with mine. Or the fact that so many other historical figures have come to the same conclusion: you can't predict the future using the past. It just occurred to me wonder what NNT thinks about Santayana: "Those who cannot remember the past are condemned to repeat it." Of course, history is never perfectly repeated, but we can develop lore and instinct from these past interactions, which is something I think NNT does agree with -- empirical (experiential) observations are where we should be looking. So I guess instead of simply "you can't predict the future using the past," we should add to that "but we can keep an eye on it." Predictability implies future knowledge and that is something we don't have, but certainly there are particular arrangements of preceding factors that may (BUT NOT DEFINITIVELY) give rise to similar future results.

I like quantitative finance for the admission that probability is a huge factor in markets, which is something completely missing from the "campfire story" tenets of "technical" trading. I do have to heed NNT's view that the Gaussian probability distribution probably is not the best way to understand a market that has numerous blow-ups (and if the Mandelbrotian fractal power law distribution or whatever is more applicable, what does that say about the size of some possible future blow-up? We ain't seen nothing yet...?). Is there any way to realistically account for these kinds of things? Taleb would buy huge numbers of OTM options (calls I think? Maybe both sides) with the idea that the view rare events that put him in the money were less rare than people thought, although it's not clear to me how that strategy worked out -- talk of that is conspicuously hard to find.