Another conflict of this kind can be seen in a bank, between the risk taking arm (traders in the front office) and the risk controlling teams (market and credit risk managers in the middle office). The incessant strife between them, in fact, ends up implementing the risk appetite of the bank as decided by the senior management. When the conflict is missing, problems can arise. For a trader, performance is quantified in terms of the profit (and to a lesser degree, its volatility) generated by him. This scheme seems to align the trader’s interests with those of the bank, thus generating a positive feedback loop. As any electrical engineer will tell you, positive feedback leads to instability, while negative feedback (conflict driven modes) leads to stable configurations. The positive feedback results in rogue traders engaging in huge unauthorized trades leading to enormous damages or actual collapses like the Bearings bank in 1995.

We can find other instances of reinforcing feedback generating explosive situations in upper management of large corporates. The high level managers, being board members in multiple corporate entities, keep supporting each other’s insane salary expectations, thus creating an unhealthy positive feedback. If the shareholders, on the other hand, decided the salary packages, their own self-interest of minimizing expenses and increasing the dividend (and the implicit conflict) would have generated a more moderate equilibrium.

The rule of conflict is at work at much larger scales as well. In a democracy, political parties often assume conflicting world views and agendas. Their conflict, ratified through the electoral process, ends up reflecting the median popular view, which is the way it should be. It is when their conflicting views become so hopelessly polarized (as they seem to be in the US politics these days) that we need to worry. Even more of a worry would be when one side of the conflict disappears or gets so thoroughly beaten. In an earlier post, I lamented about just that kind of one-sidedness in the idealogical struggle between capitalism and socialism.

Conflicts are not limited to such large settings or to our corporate life and detective stories. The most common conflict is in the work-life balance that all of us struggle with. The issue is simple — we need to work to make a living, and work harder and longer to make a better living. In order to give the best to our loved ones, we put so much into our work that we end up sacrificing our time with the very loved ones we are supposedly working for. Of course, there is a bit of hypocrisy when most workaholics choose work over life — they do it, not so much for their loved ones, but for a glorification, a justification or a validation of their existence. It is an unknown and unseen angst that is driving them. Getting the elusive work-live conflict right often necessitates an appreciation of that angst, and unconventional choices. At times, in order to win, you have to break the rules of the game.

What is monitored are risk measures such as the Greeks and Value at Risk (VaR). The Greeks are the first and second order derivatives of the price of a security with respect to various market variables such as the price of the underlying, interest rates, volatility as well as trade specific entities like the time to maturity. The VaR is a statistical end point measure estimating the amount of loss at a given confidence level in the case of an adverse market movements, and is typically computed using the historical market movements over the past year or so. These risk measures are aggregated, sliced and diced in various ways to make it easy to monitor them, and reported to senior management, risk control committees, trading desks etc. The MRM team is also responsible for reporting to regulatory agencies, both in the form of regular compliance reports as well as ad hoc reports in response to drastic market moves.

Quants can find opportunities in the Analytics team embedded within MRM. This team is in charge of pricing model validation, which is the process of ensuring that the mathematical models deployed in trading systems and other valuations engines are both appropriate and correctly implemented. There is a significant overlap between the work that MRM analytics quants do and their Front Office counter parts (whom we called pricing or model quants). The Analytics team also takes care of any other quantitative tools needed in MRM or risk management in general. Such tools could include potential future exposures (PFE) for credit risk management, liquidity modelling for Assets and Liability (AML) etc.

The Eastern view is just the opposite – the first of the four noble truths of Buddhism is that life is suffering. Hinduism, which gave birth to Buddhism, says things like this world and the cycle of life are very difficult (Iha Samsare Bahu Dustare in Bhaja Govindam, for instance). Our job is to ensure that we don’t get too attached to the illusory things that life has to offer, including happiness. When we pray for our dead, we pray that they be relieved of the cycle of life and death. Deliverance is non-existence.

Of course, I am vastly oversimplifying. (Let me rephrase that — this oversimplified version is all I know. I am very ignorant, but I plan to do something about it very soon.) Viewed in the light of these divergent stances against the conundrum of life, we see why westerners place such a premium on personal happiness and glory, while their eastern counterparts tend to be fatalistic and harp on the virtues of self sacrifice and lack of ambition (or its first cousin, greed).

To an ambitious westerner, any chance at an incremental increase in personal happiness (through a divorce and remarriage, for instance) is too good an opportunity to pass up. On the other side of the globe, to one brought up in the Hindu way of life, happiness is just another illusory manifestation not to be tempted by. Those caught in between these two sets of rules of life may find it all very confusing and ultimately frustrating. That too is a macro level pattern regimented by the micro level rules of the game.

When a bank issues you a credit card, it takes on credit risk that you may not pay up. You pay an insanely high interest rate on your outstanding balance precisely because of this credit risk. The risk is not secured. A mortgage or an auto loan, on the other hand, is secured by the equity of your property, and you pay a significantly lower interest because of the collateral.

The Middle Office team of Credit Risk Management (CRM) operates using the same two paradigms. Much the same way as you have a credit limit on your credit card or line of credit, each counterparty that the bank trades with has a certain credit limit based on their credit rating as published by credit raiting agencies such as Moody’s or Standard & Poor. The problem with this mode of managing credit risk is that the bank has no way of knowing how much credit is loaded against a counterparty’s rating in other banks. Nor does it have a means of finding out how many credit cards you have. In Singapore, the regulatory authority, MAS, tries to minimize the risk of people going bust be requiring that their credit limit be twice their monthly salary. Bt they may get as many credit cards as they want from different banks against the same limit, effectively nullifying the good intention behind the requirement.

This overloading against credit rating is avoided when the risk is managed using collaterals. Much like you cannot take two mortgage loans on the same property (not without adequate equity, any way), counterparties in trading also cannot use the same collateral for multiple trades. Banks and counterparties typically use bonds as collaterals and physically exchange them during secured transactions.

Before the Front Office trader can enter into a trading agreement with a counterparty, they will need to get approval from the credit controllers who will assess exposures and check them against predefined limits. The exposure assessment uses techniques such as potential future exposure (PFE) based on a large number of simulations of potential future markets.

In addition to the risk of counterparties defaulting during the life time of a trade, CRM professionals worry about the potential for default during the delay in settlement — after the maturity of a trade (where the bank is in the money) and its settlement. This risk is aptly called the settlement risk.

Okay, with that reservation stated and out of the way, let’s approach the problem systematically. My thesis in this series of posts is that the macro-level patterns of a dynamic system (like a chess game, corporate office, or life itself) can be sort of predicted or understood in terms of the rules of engagement in it. In chess, we saw that general pattern of any game (viz. structured beginning, messy mid-game, clean endgame with a win, lose or draw) is what the rules prescribe. In this last post, we are going to deal with life. In a trivial analogy to chess, we can describe the pattern like this: we are all born somewhere and some point in time, we make our play for a few years, and we bow out with varying amount of grace, regardless of how high we soar and how low we sink during our years. But this pattern, though more rigorously followed than our chess pattern, is a bit too trivial. What are the salient features or patterns of human life that we are trying to understand? Human life is so complex with so many aspects of existence and dimensions of interactions among them that we can only hope to understand a limited projection of a couple of its patterns. Let’s choose the pattern of family units first.

The basic set of rules in human life comes from evolutionary biology. As a famous man put it, nothing in biology (or life itself, I would think) makes sense except in the light of evolution. On the other hand, everything from gender politics to nuclear family units makes perfect sense as the expressions of the genetic commands encoded in our DNA, although we may be stretching the hypothesis to fit the facts (which is always possible to do) when we view it that way. Let’s look at the patterns of gender relations in family units, with the preamble that I am a total believer in gender equality, at least, my own brand of it.

Evolutionary biology tells us that the instruction encoded in our genes is very simple — just live a little longer, which is at the root of our instincts for self preservation and reproduction. In the end, this instruction expresses itself as a man’s hidden antipathy toward monogamy and a woman’s overt defense of its virtues. Although this oft-repeated argument can be seen as a feeble attempt at justifying the errant and philandering behavior of man, it has simplicity on its side. It makes sense. The argument goes like this: in order to ensure the continued survival of his genes, a man has to mate with as many partners as possible, as often as possible. On the other hand, given the long gestation period, a woman optimizes the survival chances of her genes by choosing the best possible specimen as her mate and tying him down for undivided attention and for future use. Monogamy indeed is virtuous from her perspective, but too cruel a rule in a man’s view. To the extent that most of the world has now adopted monogamy and the associated nuclear family system as their preferred patterns, we can say that women have won the gender war. Why else would I feel scared to post this article? Weaker sex, indeed!

Evolutionary biology is only one way of looking at life. Another interesting set of rules comes from spiritual and religious philosophy, which we will look at in the next post.

What are these famous rules I keep harping on? You would expect them to be much more complex that those of a simple chess game, given that you have a large number of players with varying agendas. But I’m a big fan of simplicity and Occam’s Razor as any true scientist should be (which is an oblique and wishful assertion that I am still one, of course), and I believe the rules of the corporate game are surprisingly simple. As far as I can see, there are just two — one is that the career progression opportunities are of a pyramid shape in that it gets progressively more difficult to bubble to the top. The other rule is that at every level, there is a pot of rewards (such as the bonus pool, for instance) that needs to be shared among the co-workers. From these rules, you can easily see that one does better when others do badly. Backstabbing follows naturally.

In order to be a perfect player in this game, you have to do more than backstabbing. You have to develop an honest-to-john faith in your superiority as well. Hypocrisy doesn’t work. I have a colleague who insists that he could do assembly-level programming before he left kindergarten. I don’t think he is lying per-se; he honestly believes that he could, as far as I can tell. Now, this colleague of mine is pretty smart. However, after graduating from an IIT and working at CERN, I’m used to superior intelligences and geniuses. And he ain’t it. But that doesn’t matter; his undying conviction of his own superiority is going to tide him over such minor obstacles as reality checks. I see stock options in his future. If he stabs someone in the back, he does it guiltlessly, almost innocently. It is to that level of virtuosity that you have to aspire, if you want to excel in the corporate game.

Almost every feature of the modern corporate office, from politics to promotions, and backstabbing to bonuses, is a result of the simple rules of the game that we play it by. (Sorry about the weak attempt at the first letter rhyme.) The next expansion of this idea, of course, is the game of life. We all want to win, but ultimately, it is a game where we will all lose, because the game of life is also the game of death.

Middle Office is different from Front OFfice in that it has little interaction with the external world. Its primary (and perhaps only) customers are the Front Office traders and teams. As usual, most of the interactions among the teams within Middle Office and Front Office take place via the trading platform, which acts like the boundary interface between the two Offices, as shown in the slide.

In later posts, we will go through the functions of each of the business units described as a box in the picture. For now, as a general summary, we can see that the Middle Office functions are of two kinds: those related to trade approvals based on projected risks and limits, and those related to regular trade monitoring. But these functions are vast in their scope, and require large systems, data flows and an army of professionals to carry them out. They are organized under the business units with names like Product Control, Trade Control (or Treasury or Business Control) Unit, Market, Credit and Operational Risk Management), Limits Monitoring, Rates Management, Compliance and Regulatory Reporting, Analytics, Asset and Liability Management etc. Again, keep in mind that this description of Middle Office is from the perspective of quantitative development relevant to structured products trading.

A remarkable Indian writer and thinker, O. V. Vijayan, also used the metaphor of a chess game to describe the armed strife between India and her sibling neighbor. He said that our too countries were mere pawns in a grand chess game between giant players of the cold war. The players have stopped playing at some point, but the pawns still fight on. What made it eerie (in a Dr. Strangelove sort of way) is the fact that the pawns had huge armies and nuclear weapons. When I first read this article by O. V. Vijayan, his clarity of perspective impressed me tremendously because I knew how difficult it was to see these things even-handedly without the advantage of being outside the country — the media and their public relations tricks make it very difficult, if not impossible. It is all very obvious from the outside, but it takes a genius to see it from within. But O. V. Vijayan’s genius had impressed me even before that, and I have a short story and a thought snippet by him translated and posted on this blog.

Chess is a good metaphor for almost everything in life, with its clear and unbending rules. But it is not the rules themselves that I want to focus on; it is the topology or the pattern that the rules generate. Even before we start a game, we know that there will be an outcome — it is going to be a win, loss or a draw. 1-0, 0-1 or 0.5-0.5. How the game will evolve and who will win is all unknown, but that it will evolve from an opening of four neat rows through a messy mid game and a clear endgame is pretty much given. The topology is pre-ordained by the rules of the game.

A similar set of rules and a consequent topology exists in the corporate world as well. That is the topic of the next post.

To be fair, in structured products trading, quantitative development and quantitative mathematics play a crucial role. As we will see in later posts, almost all the aspects of trade lifecycle management are mediated by the end product of these quantitative professionals, which is the trading platform. Crucially, the trading platform defines the interface between Front Office and Middle Office. Within Front Office, quantitative developers act as the conduit of integrating the pricing models developed by quants into the platform, thereby making them accessible for profit making by trading desks. Because of this buffering role that the quantitative developers play, they have to field almost all of the support requests from trading desks and sales personnel in Front Office, as well as from anyone who uses the trading platform.

In the corporate organization, quantitative developers may find themselves under the information technology department, supporting the trading platform from afar. From a career perspective, this organization is less than ideal for them because IT is a cost center, not a profit generator and the compensation and remuneration schemes reflect that fact. Besides, IT tends to be considered as being outside the core business of the bank. Far better for them would be to find themselves embedded within the Front Office setting, where the quantitative developers can offer direct support to the stakeholders from within and enjoy the prominence and prestige that comes with the critical role of managing the vital in-house trading platform.

About fifteen years ago, I visited a Japanese research institute that did all kinds of strange studies. One of the researchers there showed me his study on averaging facial features. For this study, he took a large number of Japanese faces, and averaged them (which meant he normalized the image size and orientation, digitally took the mean on a pixel-by-pixel basis). So he had an average Japanese male face and an average Japanese female face. He even created a set of hybrids by making linear combinations of the two with different weighting factors. He then showed the results to a large number of people and recorded their preference in terms of the attractiveness of the face. The strange thing was that the average face looked more pleasant and attractive to the Japanese eye than any one of the individual ones. In fact, the most attractive male face was the one that had a bit of female features in it. That is to say, it was the one with 90% average male and 10% average female (or some such combination, I don’t remember the exact weights).

The researcher went one step further, and created an average caucasian face as well. He then took the difference between that and an average Japanese face, and then superimposed the difference on an average face with exaggerated weights. The result was a grotesque caricature, which he postulated, was probably the way a Japanese person would see a caucasian for the first time.

This reminded me of the time when I visited my housemate’s farm in a small town in Pennsylvania – a town so small that the street in front the farm was named after him! I went with his parents to the local grocery store, and there was this little girl sitting in a shopping cart who went wide-eyed when she saw me. She couldn’t take her eyes off me after that. May be, seeing an Indian face for the first time in her life, she saw a similar caricature and got scared.

Anyway, my conjecture is that an averaging similar to what the Japanese researcher did happens in all of us when we migrate. First our minds see grotesque and exaggerated difference caricatures between the faces we encounter and the ones we were used to, in our previous land. Soon, our baseline average changes as we get more used to the faces around us. And the difference between what we see and our baseline ceases to be big, and we end up liking the faces more and more as they move progressively closer to the average, normal face.

Here are the average male and female faces by race or country. Notice how each one of them is a remarkably handsome or beautiful specimen. If you find some of them not so remarkable, you should move to that country and spend a few years there so that they also become remarkable! And, if you find the faces from a particular country especially attractive, with no prolonged expsosure to such faces, I would like to hear your thoughts. Please leave your comments.

[I couldn't trace the original sources of these images. If you know them, please let me know -- I would like to get copyright permissions and add attributions.]

There is more to this story than I outlined here. May be I will add my take on it as a comment below. However, the moral of the story is that if you consider yourself average, you are probably more attractive than you think you are. Than again, what do I know, I’m just an average guy.

Trading desks interact with the external world of brokers and counterparties. They take their input on market moves from highly responsive market data providers and base their positional views on staff economists. They have an army of trading assistants (junior traders themselves) who help them book and monitor their trades with the help of risk management professionals associated with the desks.

Their interaction with the rest of the bank is mainly mediated by the trading platform. When the book a trade, for instance, it goes into the trading platform and ends up with some middle office professional who will decide whether to accept it or bounce it back for further modifications. Various risk management staff from the middle office also will take a hard look at the trade, as we shall see later in the trade lifecycle.

The desk risk management team get their cues also from the Middle Office risk management, in terms of approved limits and daily marked-to-market and sensitivity reports. All these channels of communication need to be facilitated in the trading platform.

Growing Old is Not for Sissies

More important than any of these tips and tricks is to develop an ability to listen to your body. If you suddenly find yourself craving for something like a juicy steak or lamb chops, it may be that your body is telling you that it is running low on proteins. You’d better do something about it. On the other hand, if you feel like a snack when you have a truckload of work to get through, it may be that you are trying to procrastinate. You have to develop an ability to know the difference. If you are trying to get away from work, don’t use a snack as an excuse; just take a break, a short power nap or whatever rocks your boat. Don’t use food as a filler. If you really need to use anything as a filler, use exercise as one!

Losing fat and getting in shape is a dynamic process. You have to modulate your exercise and diet regime as you make progress. In the beginning, it may be important to just lose weight. Apart from the obvious medical and self-image-related benefits, it gives you an added advantage in exercising itself. In my case, after I lost 10 kilos (20 lb.), I found it a lot easier to do the 100+ pushups, and said goodbye to that knee pain after a vigorous session of badminton. Losing weight when you are overweight does mean tons of cardio (running, swimming, treadmill, cross trainer etc.) and a strict diet. But you cannot keep losing weight at a steady, fairly drastic rate of a kilo a week and then suddenly stop at your target. You have to kind of soft land when you reach your target. That means less cardio, and perhaps a different kind of diet.

One thing you may notice as you lose weight is that you are losing muscles as well. My web research seems to indicate that it is most likely an illusion, although too much cardio and too strict a diet can make you lose muscles too. Apparently, that happens only at near-starvation levels. But it is a good idea to ramp up your resistance training as get closer to your target weight because what you want to lose is fat, not weight in the form of muscles. Right now, my exercise time is roughly 50% cardio and 50% strength training. I plan to make it progressively more strength, perhaps up to 70%. But it used to be almost 90% cardio in the beginning of the year. The best form of cardio for me is what they call high intensity interval training (HIIT). In this mode, after a short warm up (of two minutes), you go flat-out for 30 seconds and then slow down for a minute, and repeat the cycle. Flat-out in my case means I get my heart rate up to what they consider the maximum (which is 220 minus your age). So I oscillate between the heart rates of 170 for 30 seconds and 140 for a minute. I think this is a pretty drastic cardio regime; I could do it because I have always had some level of exercise ever since I was a teenager. Your fitness levels may call for a different regime. So please be careful if you decide to take up this HIIT formula. If you have any doubts at all, please talk to your doctor first.

Finally, what about those six packs? Are you ever going to get those? The honest answer is, it is unlikely, especially if you are a man. If you are woman, and you really want the six pack, it may be easier for you. Let me explain. We all have good abs muscles. It is just that we have layers of fat covering them. It reminds me of that time twenty years ago, when I was trying to get my then housemate in Ithaca, NY to join me on a long bike ride. This big fellow (over 250 lb.) wasn’t budging, and I tried to egg him on, “C’mon Roger. It will be a fun work out! Get the body you always wanted.” His sleepy reply from the couch was to the point, “I got the body I want. And then some!” That extra “some” is the problem hiding your six-packs. In order to begin to see them, you need to bring your body fat level to less than 10%, or less than 20% if you are a woman. Given that the body fat level for a reasonably inactive, but healthy, man is about 30% (and 40% for woman), the target level for a six pack is pretty far off. My own body fat percentage, according to my last medical, was over 35%. Now it may have come under 30%, but still pretty fricking far from okay (to paraphrase Marsellus of Pulp Fiction).

Having said that, I will try to get there because I like impossible odds and lost causes; I always did. Here is the plan: first thing to realize is that there is no such thing as a “targeted” fat loss. You cannot lose fat just from your tummy. And there is no way you can do countless crunches and get a six pack, which is why you don’t see a six pack on a guy with puny, pencil-like limbs. It is an all-or-nothing deal, part of a package. You have to do a lot of strength training on your major muscle groups (legs, back, chest, hands etc.), which will then act as fat burning machines getting you closer to your target of low body fat percentage. This is precisely what I plan to do for the rest of the year.

I think I will have one more post on this series, describing some exercises that I consider good, and sharing some tips. And describing the results of my protein shake experiment, which I am getting into this week. I don’t want to make this blog anything like a lose-weight, build-body, live-strong kind of site because I am just not qualified enough to talk too much about these things. This fitness craze of mine is perhaps only a passing fancy. Then again, my life has been a series of passing fancies, which I guess is as good a way to live it as any. Probably even better than most.

The life of a sales professional is a tough one. They need to meet progressively more aggressive targets in sales volumes to stay in the game. The moment they meet the target one year, it jumps the next year to an even more unattainable level. The sales staff, therefor, find themselves under constant (or even increasing) pressure. Knowledge of mathematical finance, while useful, is not a pre-requisite for sales jobs. In fact, mathematically inclined folks tend to be reserved and introverted, and tend not to have the qualities that make for a good salesman. In other words, if you are a quant, your most ideal role is not in sales, although the structuring side may offer some interesting opportunities.

Ok, here is the deal. You take the quiz below. It has over 40 true-or-false questions about your habits and mannerisms. Once you answer them, I will tell you whether you believe in God, and if so, how much. If you get bored after say 20 questions or so, it is okay, you can quit the quiz and get the score. But the more questions you answer, the more accurate my guess about your faith is going to be.

Once you have your score (or rate, if you didn’t finish the quiz), click on the button corresponding to it.

Here is how it works. There is a division of labor going on in our brain, according to the theory of hemispheric specialization of brain functions. In this theory, the left hemisphere of the brain is considered the origin of logical and analytical thinking, and the right hemisphere is the origin of creative and intuitive thinking. The so-called left-brain person is thought to be linear, logical, analytical, and unemotional; and the right-brained person is thought to be spatial, creative, mystical, intuitive, and emotional.

This notion of hemispheric specialization raises an interesting question: is atheism related to the logical hemisphere? Are atheists less emotional? I think so, and this test is based on that belief. The quiz tests whether you are “left-brain” person. If you score high, your left-brain is dominant, and you are likely to be more analytical and logical than intuitive or creative. And, according to my conjecture, you are likely to be an atheist. Did it work for you?

Well, even if it didn’t, now you know whether you are analytical or intuitive. Please leave a comment to let me know how it worked.

[This post is an edited excerpt from my book The Unreal Universe]

But seriously, economists are the mouthpieces of the bank. When you see someone from an investment bank on TV making an intelligent observation about the market outlook, it is likely to be a staff economist. If you manage to navigate through the jumble of hands, you will hear what the bank wants to say to the world.

That is precisely why you have to pay close attention and try to read between the lines. You are listening to what the bank wants you to hear. When you listen to a Morgan-Stanley economist assert that Facebook is the best thing since sliced bread, should you trust him, given that they were the investment bank behind Facebook IPO? Of course, the lingo you will hear from the economist would be a lot nicer, subtler and more convincing than I can muster. But you should still ask yourself, “Is there a hidden agenda?”

Economists may seek to influence the market; they also distill and condense their take on the market and share it with the traders and executives so that they can formulate and fine-tune their tactics and strategies. Thus, they play an important role in the directional views that banks take when navigating the tricky waters of trading and speculating.

Anyway, this pen that I got from my uncle was a handsome matte-gold specimen of a brand called Crest, possibly smuggled over the Chinese border at the foothills of the Himalayas and procured by my uncle. I was pretty proud of this prized possession of mine, as I guess I have been of all my possessions in later years. But the pen didn’t last that long — it got stolen by an older boy with whom I had to share a desk during a test in the summer of 1977.

I was devastated by the loss. More than that, I was terrified of letting my mother know for I knew that she wasn’t going to take kindly to it. I guess I should have been more careful and kept the pen on my person at all times. Sure enough, my mom was livid with anger at the loss of this gift from her brother. A proponent of tough love, she told me to go find the pen, and not to return without it. Now, that was a dangerous move. What my mom didn’t appreciate was that I took most directives literally. I still do. It was already late in the evening when I set out on my hopeless errant, and it was unlikely that I would have returned at all since I wasn’t supposed to, not without the pen.

My dad got home a couple of hours later, and was shocked at the turn of events. He certainly didn’t believe in tough love, far from it. Or perhaps he had a sense of my literal disposition, having been a victim of it earlier. Anyway, he came looking for me and found me wandering aimlessly around my locked up school some ten kilometer from home.

Parenting is a balancing act. You have to exercise tough love, lest your child should not be prepared for the harsh world later on in life. You have to show love and affection as well so that your child may feel emotionally secure. You have to provide for your your child without being overindulgent, or you would end up spoiling them. You have to give them freedom and space to grow, but you shouldn’t become detached and uncaring. Tuning your behavior to the right pitch on so many dimensions is what makes parenting a difficult art to master. What makes it really scary is the fact that you get only one shot at it. If you get it wrong, the ripples of your errors may last a lot longer than you can imagine. Once when I got upset with him, my son (far wiser than his six years then) told me that I had to be careful, for he would be treating his children the way I treated him. But then, we already know this, don’t we?

My mother did prepare me for an unforgiving real world, and my father nurtured enough kindness in me. The combination is perhaps not too bad. But we all would like to do better than our parents. In my case, I use a simple trick to modulate my behavior to and treatment of my children. I try to picture myself at the receiving end of the said treatment. If I should feel uncared for or unfairly treated, the behavior needs fine-tuning.

This trick does not work all the time because it usually comes after the fact. We first act in response to a situation, before we have time to do a rational cost benefit analysis. There must be another way of doing it right. May be it is just a question of developing a lot of patience and kindness. You know, there are times when I wish I could ask my father.

• Economists who talk to the media and receive market inputs that they condense into useable intelligence for the rest of the bank.
• Sales and Structuring teams who talk to customers to sniff out potential opportunities.
• Trading Desks, interacting with their peers in other financial institutions and other counter parties.

One level removed from this layer of customer or world-facing teams are the quants and quantitative developers of Front Office, along with the risk managing professionals associated with the desks. They play supporting roles to the first layer of teams. Quants develop pricing models, quantitative developers roll them out into trading platforms, and the desk risk management team helps traders monitor and hedge their exposures. Note that almost all the interactions among these teams are mediated by the trading platform. The platform also acts as a conduit between the functions of Front Office and Middle Office. The nature of these functions and interactions of each team will be the topic of the next few posts, starting with the economists. Stay tuned.

Swami Vivekananda gave a few speeches at the World Parliament of Religions in 1893. These speeches still fill us Indians with a good deal of pride. I managed to locate an old recording of them on the Internet and cleaned it up a bit. Here it is for your listening pleasure.

The skeptic in me, however, will not let it to go without a critical self-examination. What exactly am I proud of? I would like to say his deep thoughts on the Hindu philosophy and his lucid expose on it. But the fact of the matter is, I was proud even before I heard or read the speeches. If you are proud as well, let me ask you this: did you actually listen to the whole speech? If you did not, what are you really proud of? By the way, I have the latter part of the speech (his paper on Hinduism) posted below, for your reading pleasure. One way or another, you are going to pay the price for your pride!

I suspect my pride is a throwback to the colonial era, and the reverence of the associated foreign language that we somehow assimilated from our parents or grandparents. May be it is a bit more than that — may be it is that Swami Vivekananda managed to impress the heck out of a bunch of them, the colonial masters, which is something all of us want to do at some deep level. May be it is just his strong and fluent diction, and his command of the language.

If you see a dog walking on its hind legs, it’s not so much that it does it well, as that it does it at all. Is it appropriate for other dogs to feel proud of a dog that can demonstrate this alien trait? Are we doing something similar when we admire each other’s command of this foreign tongue? After publishing a column on Reading Between the Lines in a local newspaper, I got a phone call from a fan. Let’s put aside the feeling of creepiness in getting a phone call from a stranger on your cell phone; the gentleman (who sounded kind of old) was pleased with the what I wrote and how I wrote it. Now, thinking back about that call, I feel as though his admiration was also perhaps a remnant of our shared colonial past (though, in my case, the past was one or two generations removed). May be he felt that I had finally learned enough English to make an efficient clerk. This dog had finally mastered the art of walking on his hind legs.

Whatever its origin, this pride of mine has a flip side to it. It is the rise of the evangelical TV talk shows in India, and the instant nirvanas offered by new gurus. A while ago, I published a piece warning of the dangers posed by the modern gurus. While conceding that I may be prejudiced against them, I would like to draw your attention to this video where a guru is demonstrating the magical powers of a newly re-discovered ancient concoction, manufactured and sold by his nephew. A believer sees in this spectacle a genuine miracle, or at least a good, albeit hidden, reason for the guru to be doing this demo. I see only a bad reason. Instances like this video (and the live show I happened to have caught) fill me with the opposite of pride — shame. But then, what do I know — may be a hundred years from now, long after I’m dead and gone and forgotten, at least some of these modern gurus may be revered the same way Swami Vivekananda is now; though I wouldn’t count on it. In any case, I am pretty sure that their descendants will be a lot richer than mine.

Here is another such demo in a different context where nobody will have problem spotting the trick.

These videos and their message may have offended some of my readers, and for that, I apologize. When people invest their time and energy into spiritual endeavors, they do not want to be made aware of the negative aspects of their path, because seeing something negative in their pursuit is, in their view, tantamout to questioning their intelligence. This peculier resistance to truth also gets masterfully and cynically exploited by the new-age spiritual movements. I only want to say that I mean well, for some of those affected are people very dear to me.

And as promised earlier, here is the paper on Hinduism by Swami Vivekananda that he read at the Chicago conference.

The Middle Office faces the Front Office, not the external world. They busy themselves with trade validation, lifecycle management, risk calculation, monitoring, limits enforcements etc. The Back Office is far removed from the Front (and from the sphere of influence of a quant or a quantitative developer). They take care of vitally important aspects of trading — namely settlements, taking and paying money. They also control the numbers that appear in the very visible annual reports.

By the way, the naming of the offices has nothing to do with their geographic location — a fact I learned early in my banking career about seven years ago when my boss wanted to take me to meet someone in the Back Office. I couldn’t figure out why he wasn’t actually leading me to the back of the building, I am embarrased to admit.

All the Offices are supported by multiple departments in the bank, most notably the Information Technology (which may go by the names Group Technology or any other transmogrificaiton of it). Also supporting everyting happening in a bank (or in any corporate body, for that matter) would be Human Resources, Finance etc.

Before we conclude this post, we have to highlight a couple of caveats. The structure described above is by no means the whole bank. It is only the trading arm of the investment banking side of a modern bank. This part happens to be the one most relevant to quantitative developers. Even in this limited remit, the details of the structure (which we will get to in the subsequent posts) are not cast in stone. Each bank may have its own partitions, naming conventions and organizational and heirarchical structures around the various offices. Despite such differences, the static topology of the various offices haas enough commonality that we can talk about it general terms. As we will explore how the omnipresent trading platform mediates almost all interactions among these offices and their teams in the subsequent posts, we will get into more details of the structure.

Before we go much further, a word of caution. The program outlined below is something that worked for me, but your level of fitness may be different, and you may need a completely different regime. My regime is borderline extreme. So please use your better judgement before adopting it. If in doubt, of if you have any health conditions, please consult your doctor first.

With that disclaimer out of the way, let me give you the good news first. With barely two months into 2013, I’m hovering below 73kg. I have already recalibrated my target to 72kg, but that’s going to be breached in a week or two. Then the target will have to change to an enviable “don’t lose too much” kind. How did I do it? That, of course, will involve a bit of bad news.

The mathematics of weight loss is pretty simple. In order to lose weight, you have to burn more calories than you eat. In other words, you have to create a caloric deficit. That means you have to know the number of calories in everything you eat. At this point, most of us give up. Who has the time to memorize or look up all that ? Fortunately, I have an easy answer for you. If you don’t know the number of calories in something you are about to devour, and if you feel that it is kind of good, or the portion is kind of small, assume that it has 100 calories. So a glass of juice, a fruit, a small serving of nuts, a slice of bread, a strip of bacon all have about 100 calories. If it is something a bit sinful, assume it has 300 calories. Examples: a scoop of ice cream, a milkshake, a good streak etc. If it is something kind of in between, assume it is 200 calories. Say a latte or a cocktail or a glass of wine. Of course, this counting will never be perfect. It is only an approximation. But then, so are all the calorie numbers you would read up on the Internet. After all, how do they know how big your ice cream scoop or your wine glass is? My point is, it is much better to have a rough idea than to give up and have no clue at all. Besides, the errors tend to cancel each other (as Enrico Fermi used to say) and your estimate is going to be probably much better than you think.

Ok, now you know how to count calories — which is the first step in creating a caloric deficit. The second step is to know host many calories you burn. They say a man burns 2200 and a woman burns 1800 calories a day. I don’t know why this estimate is sexist, but there you have it. The highest caloric deficit your body can tolerate is about 1000. So you need to eat at least 1000-1200 calories, plus about 300 calories more if you work out. But realistically, you will miscount your calories probably by about 200-300 calories, which is something to remember. With a deficit of 1000 calories a day, you will lose about 1kg (2lb) a week, which is what I did in the last 10 weeks or so.

The next part is the hardest bit. How do we shed 1000 calories worth of food? Let’s take a look at a typical day and do a calorie count. (Actually, this was my typical day last year.)

How in the world can we bring it down to 1200? Yes, we can. Here is my day now.

The main thing is that I gave up coffee and alcohol, and took up Perrier instead (as if to celebrate my French connection). That is what you will have to do as well, if you want to shed weight. I know, I know – you really really need that coffee, or you will feel like a zombie the whole day. You are so stressed out, you cannot unwind and fall asleep without a drink, what’s the harm in that? Well, if you are serious about losing weight, every calorie counts, and you need an iron will.

I also hit the gym four or five times a week, and play badminton two or three times, often both on the same day. If you think that is tough, consider what a black belt test entails – 100 pushups, 100 burpees, 100 squats, 100 kicks and 10 board breakings. Impossible in your late forties, right? A classmate of mine has just managed it. And no, he wasn’t one of those health nuts throughout his life. He says it took him about six months to get to the black belt level. I guess that also calls for an iron will. And an iron will is what some of these dudes have bucketfuls of. Me included, fortunately.