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In Cauda Venenum

In A Short Pedagogical Note, Nassim Taleb outlines his specific objection to Extreme Value Theory (EVT), imploring us to forget about it (fuhgetaboudit!). Unfortunately, financial panics and hundred-year floods continue to remind us of EVT, as do pandemics. Juxtaposing A Short Pedagogical Note with Taleb’s treatise, Tail Risk of Contagious Diseases, one might conclude that the risk engineer occupies the ultimate hedged position as a both an opponent and proponent of EVT.


Coronavirus relief will not be financed through through traditional taxes, but through inflation of the monetary base. The debate over tax rates obscures the remarkable stability of federal tax receipts. Since 1946, federal revenue averaged 16.82% of gross domestic product (GDP). A return to the marginal rates of yesteryear, which were at times above 90%, is therefore unlikely to yield additional revenue. A graph illustrating top marginal tax rates over time immediately follows:

Make New Friends

A multimetallic buying binge has resulted in a shortage of physical precious metals for the U.S. Mint and its downstream dealers. A phone call to Kitco on Wednesday confirmed that conversion of silver pools to physical delivery would command an eleven-dollar premium per ounce over spot. Luckily, there are paper equivalents whose expense ratios are much more favorable than the aforementioned premium. Figures and Commentary Using our Ticksift platform, we consider the following three exchange traded funds (ETFs): GLDM (SPDR Gold Trust), SLV (iShares Silver Trust), and CPER (United States Copper Index Fund).

Bonfire of the Volatilities

Diversification only insulates a portfolio from decline if assets remain uncorrelated. Stock market crashes are largely non-diversifiable within the stock market. This is because the correlations between stocks increase dramatically in volatile market conditions. Such is the fate of Direxion’s Daily Technology Bull fund, hereinafter referred to as TECL. The following companies comprise the top ten components of TECL, abstracted on 16 March 2020 and alphabetized by company name: Accenture (ACN) Adobe (ADBE) Apple (APPL) Cisco (CSCO) Intel (INTC) Mastercard (MA) Microsoft (MSFT) Nvidia (NVDA) Salesforce (CRM) Visa (V) Each company was added to the Security Explorer on our Ticksift platform.

Yes, It's Normal!

In a prior blog post, Is it Normal?, we began with two normal distributions and summed their frequencies to obtain a Gaussian mixture. In this post, we begin with a Gaussian mixture and deploy the Expectation-Maximization (EM) algorithm to decompose a given Gaussian mixture into its component distributions. Example code is included, and the results of these examples are contrasted with that of an R package mixtools, a professional software release which is based upon based upon work supported by the National Science Foundation under Grant No.

Is It Normal?

The sum of random variables should not be confused with the sum of their distributions. If both distributions are normal, the former is also a normal distribution with appropriately scaled parameters. The latter would be what is called a Gaussian mixture. This piece will illustrate both sums, beginning with two normal distributions with identical standard deviations yet different means. First, we load necessary packages and define our distributions: pacman::p_load("ggplot2", "RColorBrewer", "extrafont") set.

Risky Business: The Hidden Costs of Hiring

In this post, we consider the annualized cost of hiring a data scientist as an employee, and offer our services on a contract basis as a viable alternative. Problem The hidden costs of hiring begin long before an offer is made and continue long after. Newly-posted jobs require an average of 42 days to fill. (1) Professional onboarding costs include the inevitable orientation period during which new hires earn full salary but have yet to attain full productivity.

Cash Flow Management

Cash may be king, but cashflow is god—at least for small businesses, who can be simultaneously profitable yet bankrupt. A creditor, perhaps with cash flow problems of its own, need only delay the payment of its accounts receivable long enough such that the small business in question lacks the resources to meet its short-term obligations. Unfortunately, even fractional CFOs may be disinterested in a small business due to its size. The responsibility of cash flow management therefore falls frequently on the shoulders of those who feel ill equipped to manage what amounts to the differencing of statistical distributions over time.

Correlation, Sample Size, and Significance

The correlation coefficient, r, measures the strength of a linear relationship between variables, but not its significance. The null hypothesis of zero correlation between variables, r = 0, can be refuted by a statistical test where the associated p-value is a function both of the magnitude of correlation as well as the sample size. In general, larger sample sizes with larger |r| values are more significant. But how often do p-values and sample size simultaneously increase?

Predicting Kilowatt Consumption

Whenever past performance is indicative of future results, predictive modeling is prescient. Such is the case with electrical bills. Twenty-two months worth of electrical bills for a four bedroom, two bath apartment of a 1500 square foot duplex in the Lincoln, Nebraska area were submitted by residents. The following billing-period statistics were abstracted from each electrical bill: kWh, total kilowatt hour usage, avg_kWh_per_day, average kilowatt hour usage per day, avg_high, average high temperature, and avg_low, average low temperature.