Cartographies of Disjunction’s Relational Dust. Thought of the Day 27.0

The biogrammatic interface, generates a political aesthetic in which action is felt through the affective modulations and/or tonalities it incites. A doubling occurs in the moving towards realization, the rearticulation, of the becoming-thing/gesture. This doubling divides in a central differentiation, referencing a voluminous vocabulary of the interstitial – fissure, gap, disjunction, in-between, crack, interface, fold, non-place – descriptors of a bifurcating rift between content and expression, necessary for realization. Deleuze sums up the crux of this Foucauldian argument:

Things can be realized only through doubling or dissociation, creating divergent forms among which they can be distributed. It is here that we see the great dualities: between different classes, or the governing and the governed, or the public and the private. But more than this, it is here that the two forms of realization diverge or become differentiated: a form of expression and a form of content, a discursive and a non- discursive form, the form of the visible and the form of the articulable. It is precisely because the immanent cause, in both its matter and its functions, disregards form, that it is realized on the basis of a central differentiation which, on the one hand will form visible matter, and on the other will formalize articulable functions.’ (Gilles Deleuze, Sean Hand-Foucault)

It can be argued that this central differentiation or interface distinguishes between the movements of two diagrammatic registers: outside from inside and the forms of realization. Transductive processes between these registers mark portals of entry through which all points of the diagram are in superposition, in passage as intensities of non-localizable relations from one point to another. The diagram distributes affective intensities within the context it maps.

Deleuze elasticizes Foucault’s reach by translating his oeuvre within the folding/unfolding of a knowledge-power-subjectivity continuum, mapping Foucault’s relays between the bifurcating polarities of content/expression, visibilities/statements as they differentiate and integrate through the folding ‘zone of subjectification’. The biogramming interface. The ‘event’ of rearticulation, of knowledge-capture and distribution, takes place through the perceptual filter of differential relations becoming-actual as a perception or thought. This is a topological dynamic mapped by the diagram, affected through the central differentiation (biogram) ‘or the ‘non-place’, as Foucault puts it, where the informal diagram is swallowed up and becomes embodied instead in two different directions that are necessarily divergent and irreducible. The concrete assemblages are therefore opened up by a crack that determines how the abstract machine performs’. It’s the process of swallowing up the relational intensities of a milieu and spitting back out certain selected somethings to be swallowed again that’s of particular interest to political aesthetics of the performative event. Foucault imagined a cartographic container of forces, affects, attractions and repulsions that modulate the diagram, excite the disjunction that separates forms of realization. The abstract machine begins to actualize its virtual potential as it distributes its relational dust.

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Kenneth Knoespel notes that diagramma in the original Greek does ‘not simply mean something that is marked out by lines, a figure, a form or a plan, but also carries a second connotation of marking or crossing out,’ suggesting not only ephemerality but also an incompleteness that carries an expectation of potential. ‘What is interesting is that the diagram participates in a geneology of figures that moves from the wax tablet to the computer screen […] the Greek setting of diagram suggests that any figure that is drawn is accompanied by an expectancy that it will be redrawn […] Here a diagram may be thought of as a relay. While a diagram may have been used visually to reinforce an idea one moment, the next it may provide a means of seeing something never seen before. Diagrams As Piloting Devices…

 

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Optimal Hedging…..

Risk management is important in the practices of financial institutions and other corporations. Derivatives are popular instruments to hedge exposures due to currency, interest rate and other market risks. An important step of risk management is to use these derivatives in an optimal way. The most popular derivatives are forwards, options and swaps. They are basic blocks for all sorts of other more complicated derivatives, and should be used prudently. Several parameters need to be determined in the processes of risk management, and it is necessary to investigate the influence of these parameters on the aims of the hedging policies and the possibility of achieving these goals.

The problem of determining the optimal strike price and optimal hedging ratio is considered, where a put option is used to hedge market risk under a constraint of budget. The chosen option is supposed to finish in-the-money at maturity in the, such that the predicted loss of the hedged portfolio is different from the realized loss. The aim of hedging is to minimize the potential loss of investment under a specified level of confidence. In other words, the optimal hedging strategy is to minimize the Value-at-Risk (VaR) under a specified level of risk.

A stock is supposed to be bought at time zero with price S₀, and to be sold at time T with uncertain price S_T. In order to hedge the market risk of the stock, the company decides to choose one of the available put options written on the same stock with maturity at time τ, where τ is prior and close to T, and the n available put options are specified by their strike prices K_i (i = 1, 2,··· , n). As the prices of different put options are also different, the company needs to determine an optimal hedge ratio h (0 ≤ h ≤ 1) with respect to the chosen strike price. The cost of hedging should be less than or equal to the predetermined hedging budget C. In other words, the company needs to determine the optimal strike price and hedging ratio under the constraint of hedging budget.

Suppose the market price of the stock is S₀ at time zero, the hedge ratio is h, the price of the put option is P₀, and the riskless interest rate is r. At time T, the time value of the hedging portfolio is

S₀e^rT + hP₀e^rT —– (1)

and the market price of the portfolio is

S_T + h(K − S_τ)⁺ e^r(T−τ) —– (2)

therefore the loss of the portfolio is

L = (S₀e^rT + hP₀e^rT) − (S_T +h(K−S_τ)⁺ e^r(T−τ)) —– (3)

where x⁺ = max(x, 0), which is the payoff function of put option at maturity.

For a given threshold v, the probability that the amount of loss exceeds v is denoted as

α = Prob{L ≥ v} —– (4)

in other words, v is the Value-at-Risk (VaR) at α percentage level. There are several alternative measures of risk, such as CVaR (Conditional Value-at-Risk), ESF (Expected Shortfall), CTE (Conditional Tail Expectation), and other coherent risk measures. The criterion of optimality is to minimize the VaR of the hedging strategy.

The mathematical model of stock price is chosen to be a geometric Brownian motion, i.e.

dS_t/S_t = μdt + σdB_t —– (5)

where S_t is the stock price at time t (0 < t ≤ T), μ and σ are the drift and the volatility of stock price, and B_t is a standard Brownian motion. The solution of the stochastic differential equation is

S_t = S₀ e^{σB_t + (μ−1/2σ2)t} —– (6)

where B₀ = 0, and S_t is lognormally distributed.

Proposition:

For a given threshold of loss v, the probability that the loss exceeds v is

Prob {L ≥ v} = E [I_{{X ≤ c1}} F_Y (g(X) − X)] + E [I_{{X ≥ c1}} F_Y (c₂ − X)] —– (7)

where E[X] is the expectation of random variable X. I_{{X < c}} is the index function of X such that I_{{X < c}} = 1 when {X < c} is true, otherwise I_{{X < c}} = 0. F_Y (y) is the cumulative distribution function of random variable Y , and

c₁ = 1/σ [ln(K/S₀) − (μ−1/2σ²)τ] ,

g(X) = 1/σ [(ln (S₀ + hP₀)e^rT − h (K − f(X)) e^r(T−τ) −v)/S₀ − (μ − 1/2σ²) T],

f(X) = S₀ e^σX + (μ−1/2σ²)τ,

c₂ = 1/σ [(ln (S₀ + hP₀) e^rT − v)/S₀ − (μ− 1/2σ²) T

X and Y are both normally distributed, where X ∼ N(0,√τ), Y ∼ N(0,√(T−τ).

For a specified hedging strategy, Q(v) = Prob {L ≥ v} is a decreasing function of v. The VaR under α level can be obtained from equation

Q(v) = α —– (8)

The expectations in Proposition can be calculated with Monte Carlo simulation methods, and the optimal hedging strategy which has the smallest VaR can be obtained from equation (8) by numerical searching methods….

Biogrammatic Vir(Ac)tuality. Note Quote.

In Foucault’s most famous example, the prison acts as the confluence of content (prisoners) and expression (law, penal code) (Gilles Deleuze, Sean Hand-Foucault). Informal Diagrams are proliferate. As abstract machines they contain the transversal vectors that cut across a panoply of features (such as institutions, classes, persons, economic formation, etc), mapping from point to relational point, the generalized features of power economies. The disciplinary diagram explored by Foucault, imposes “a particular conduct upon a particular human multiplicity”. The imposition of force upon force affects and effectuates the felt experience of a life, a living. Deleuze has called the abstract machine “pure matter/function” in which relations between forces are nonetheless very real.

[…] the diagram acts as a non-unifying immanent cause that is co-extensive with the whole social field: the abstract machine is like the cause of the concrete assemblages that execute its relations; and these relations between forces take place ‘not above’ but within the very tissue of the assemblages they produce.

The processual conjunction of content and expression; the cutting edge of deterritorialization:

The relations of power and resistance between theory and practice resonate – becoming-form; diagrammatics as praxis, integrates and differentiates the immanent cause and quasi-cause of the actualized occasions of research/creation. What do we mean by immanent cause? It is a cause which is realized, integrated and distinguished in its effect. Or rather, the immanent cause is realized, integrated and distinguished by its effect. In this way there is a correlation or mutual presupposition between cause and effect, between abstract machine and concrete assemblages

Memory is the real name of the relation to oneself, or the affect of self by self […] Time becomes a subject because it is the folding of the outside…forces every present into forgetting but preserves the whole of the past within memory: forgetting is the impossibiltiy of return and memory is the necessity of renewal.

The figure on the left is Henri Bergson’s diagram of an infinitely contracted past that directly intersects with the body at point S – a mobile, sensorimotor present where memory is closest to action. Plane P represents the actual present; plane of contact with objects. The AB segments represent repetitive compressions of memory. As memory contracts it gets closer to action. In it’s more expanded forms it is closer to dreams. The figure on the right extrapolates from Bergson’s memory model to describe the Biogrammatic ontological vector of the Diagram as it moves from abstract (informal) machine in the most expanded form “A” through the cone “tissue” to the phase-shifting (formal), arriving at the Strata of the P plane to become artefact. The ontological vector passes through the stratified, through the interval of difference created in the phase shift (the same phase shift that separates and folds content and expression to move vertically, transversally, back through to the abstract diagram.)

A spatio-temporal-material contracting-expanding of the abstract machine is the processual thinking-feeling-articulating of the diagram becoming-cartographic; synaesthetic conceptual mapping. A play of forces, a series of relays, affecting a tendency toward an inflection of the informal diagram becoming-form. The inflected diagram/biogram folds and unfolds perception, appearances; rides in the gap of becoming between content and expression; intuitively transduces the actualizing (thinking, drawing, marking, erasing) of matter-movement, of expressivity-movement. “To follow the flow of matter… is intuition in action.” A processual stage that prehends the process of the virtual actualizing;

the creative construction of a new reality. The biogrammatic stage of the diagrammatic is paradoxically double in that it is both the actualizing of the abstract machine (contraction) and the recursive counter-actualization of the formal diagram (détournement); virtual and actual.

It is the event-dimension of potential – that is the effective dimension of the interrelating of elements, of their belonging to each other. That belonging is a dynamic corporeal “abstraction” – the “drawing off” (transductive conversion) of the corporeal into its dynamism (yielding the event) […] In direct channeling. That is, in a directional channeling: ontological vector. The transductive conversion is an ontological vector that in-gathers a heterogeneity of substantial elements along with the already-constituted abstractions of language (“meaning”) and delivers them together to change. (Brian Massumi Parables for the Virtual Movement, Affect, Sensation)

Skin is the space of the body the BwO that is interior and exterior. Interstitial matter of the space of the body.

The material markings and traces of a diagrammatic process, a ‘capturing’ becoming-form. A diagrammatic capturing involves a transductive process between a biogrammatic form of content and a form of expression. The formal diagram is thus an individuating phase-shift as Simondon would have it, always out-of-phase with itself. A becoming-form that inhabits the gap, the difference, between the wave phase of the biogrammatic that synaesthetically draws off the intermix of substance and language in the event-dimension and the drawing of wave phase in which partial capture is formalized. The phase shift difference never acquires a vectorial intention. A pre-decisive, pre-emptive drawing of phase-shifting with a “drawing off” the biogram.

If effects realize something this is because the relations between forces or power relations, are merely virtual, potential, unstable vanishing and molecular, and define only possibilities of interaction so long as they do not enter a macroscopic whole capable of giving form to their fluid manner and diffuse function. But realization is equally an integration, a collection of progressive integrations that are initially local and then become or tend to become global, aligning, homogenizing and summarizing relations between forces: here law is the integration of illegalisms.