Cyclic and Collective, LLC

1
Cyclic and Collective, LLC

• No one can predict the future,
• but you can be better prepared for it.
• Revised plan
• 2007 Q2

2
Goal

• To create and market a novel set of tools for
  measuring past volatility in time series data and
  modeling potential levels of future volatility
  using multifractal geometry.

3
Multi-fractal Geometry?

• What the heck is it?
• alternative method of reductionism.
• natively handles time series data, unlike
  regression.
• What does it have to do with markets?
• more 'outliers' than regression based models
  expect is problematic for their reliability.
• analysis scales easily between micro and macro
  economic concerns.

4
Multi-fractal Geometry (cont.)?

• Background
• initially developed by Benoit Mandelbrot at Yale.
• science of measuring the geometry of 'roughness'
  in complex phenomena.
• Highly adaptable to financial and economic data
• in market parlance, provides a measurement of
  turbulence in prices (and many other types of
  data).
• generates efficient and verifiable calculations.
• easily presentable analysis for decision making.

5
Overview of CNC's process

• We retrieve historical and real-time market data
  for all publicly traded securities and insert it
  into a database. Our custom application then
  performs an analysis of the data similar to MMAR
  as outlined by Mandelbrot, et al. Analysis
  results can be parsed at numerous scales from
  market-wide to individual security, and infinite
  points in between. And delivered over a web
  browser to the end user for viewing or download.

6
openMosix application layer

• Distributed application execution
• massively parallel process generation
• automatic load balancing across multiple
  processing nodes
• remotely maintainable
• plug-and-play capacity management easy scalable

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MySQL Cluster database layer

• MySQL Cluster architecture for high-availability
• Redundant data storage
• Redundant and remote server management
• Random, parallel data read/write
• MySQL Cluster for data integrity
• read/write error checking
• 'failover' capability

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Proposed Architecture

• Addition of significant data storage capacity
• Fail-safe reliability
• Efficiency
• Open source adaptability

9
Presentation layer

• Real time analysis
• calculations iterate each time new data is
  retrieved
• coded in python with embedded C enhancements
• analysis immediately presentable as soon as
  calculations complete
• php scripts rendered via Apache web server make
  it all available via a web browser

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What does the end product look like?

• Most obviously, comparison of pricing risk
  amongst like securities would be useful.
  Comparing dis-similar securities? Even better.
  Apples and oranges all become apples.
• The model can be extrapolated to the industry,
  country, hemisphere, or any level in-between.
  Infinite scalability.
• A subscription service. We do the heavy lifting
  of calculation, and the end user receives an
  easily decipherable flow of actionable
  information. Like Google.

11
Economies through reproduction

• The algorithmic strength and the depth of the
  database provide a unique first mover advantage.
  These are barriers to entry, which are not
  insurmountable, give a great advantage to the
  innovator of and soon to be the industry
  standard for volatility pricing. No industry
  player has conceived of deploying this analysis
  at this scale, and it would be difficult to
  reproduce accurately.

12
What is the market for this product?

• Anyone who wants a more accurate forecasting of
  price volatility.
• Immediately applicable, because a baseline
  volatility can established via treasuries, as the
  volatility of the risk free rate.

13
What are the future growth prospects for this
product?

• Initially to begin with a US market-centric
  database to be expanded to include every
  publically traded security on the globe.
• subscription basis or in-house custom install?
• this is really an art project?

14
Outliers kill you

• One thing you learn in the insurance business is
  that anything that can happen will happen.
  Whether it's the levees of New Orleans or the San
  Francisco earthquake, things that are very
  improbable do happen.
• --Warren Buffet
• NYTimesMag, 2007.02.25