28 The Fear Index

Just because it doesn’t appear here, that doesn’t mean Malcolm has broken his reading habit.

After HAL comes VIXAL-4

That florish [OED: 3. Ostentatious embellishment; gloss, varnish] about 2001 was a by-product of Malcolm reading Robert Harris’s latest thriller, The Fear Index.

The essential conceit is that physicist Dr Alex Hoffmann baled out of CERN to use his computer skills commercially:

‘And you’ve lived in Switzerland for how long, Dr Hoffmann?’
‘Fourteen years.’ Weariness once again almost overtook him. ‘I came out here in the nineties to work for CERN, on the Large Hadron Collider. I was there for about six years.’
‘And now?’
‘I run a company.’
‘Called?’
‘Hoffmann Investment Technologies.’
‘And what does it make?’
‘What does it make? It makes money. It’s a hedge fund.’

What he has created is a program. Hoffmann’s thesis is:

‘Our conclusion is that fear is driving the world as never before…

‘… why should al-Qaeda arouse more fear than the threat of mutually assured destruction did during the Cold War in the fifties and sixties  — which, incidentally, were times of great market growth and stability? Our conclusion is that digitalisation itself is creating an epidemic of fear, and that Epictetus had it right: we live in a world not of real things but of opinion and fantasy. The rise in market volatility, in our opinion, is a function of digitalisation, which is exaggerating human mood swings by the unprecedented dissemination of information via the internet.’

Hence, a program which captures data in real time, and instantly applies it to anticipate and exploit shifts in the bourses and money markets. This program is VIXAL-4 (“VIX” for the S&P 500 Volatility Index; “AL” for algorithm; and “4″ because

‘We’re now on to the fourth iteration, which with notable lack of imagination we call VIXAL-4.‘

This conceit was thoroughly considered in a Guardian review by Emmanuel Roman, chief operating officer of the Man Group.

All of which needs to be appreciated in light of StuxnetDuqu and now Flame. All of those seem to have a government agency behind them. If Harris is anywhere near “on the money”, someone, somewhere is already working on a VIXAL:

Quarry at the trading screen could hardly credit what he was seeing. In seconds the Dow had slipped from minus 800 to minus 900. Te VIX was up by forty per cent — dear sweet Christ, that was close on a half-billion-dollar profit he was looking at right there on that one position. Already, VIXAL was exercising its options on the shorted stocks, picking them up at insanely low prices — P&G, Accenture, Wynn Resorts, Exelon, 3-M …

So who is trying to kill Dr Hoffmann?

That, of course, is where we revert to HAL9000:

Interviewer: HAL, you have an enormous responsibility on this mission, in many ways perhaps the greatest responsibility of any single mission element. You’re the brain, and central nervous system of the ship, and your responsibilities include watching over the men in hibernation. Does this ever cause you any lack of confidence? 
HAL: Let me put it this way, Mr. Amor. The 9000 series is the most reliable computer ever made. No 9000 computer has ever made a mistake or distorted information. We are all, by any practical definition of the words, foolproof and incapable of error. 

The blurbs (front and back) rave about the book. It is highly readable — a leisurely afternoon extended into a late evening should suffice for the 385 pages. One thing is certain: this will be a major poolside-lounger book of the summer. Random House/Arrow will be despatching copies by the truck-load.