“ALTERNATIVE assets” suggests a class that offers something to enjoy. Philatelists delight in rare stamps; petrol-heads in classic cars; and oenophiles in that most liquid of assets, fine wine. The wine futures market, though, is pretty inefficient. Prices hinge on tastings of stuff that is still in the barrel, long before its reaches its fullest bloom. This en primeur pricing happens on experts’ palates, not in the equations of quants. Tristan Fletcher, of University College London, is among those who would like to change that, using some of the most probing equations computer science has yet devised.
There have been a few attempts over the years to tame the fickle wine market into an equation. These have relied on using what are known as linear regression models to make a palatable blend of facts about a given vintage out of particulars of the weather that year, the vineyard’s history of medallion-winning and so on. Linear regression takes the unseemly spray of these data points and draws through them the straight line that, over the course of time, has most closely approximated the price. Pick the point on this line where a...
from The Economist: Science and technology http://ift.tt/1KPq5bU
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