Proofs and Calibrations: An Interview with Élie Ayache
Only Élie Ayache could take something as tedious as plugging variables into a formula and turn it into something charming. The costs of entry to his corpus are high—readers must be familiar with avant-garde Continental philosophy plus actively interested in the materiality of options markets. Nevertheless, Ayache earns a place alongside such thinkers as Bataille, Klossowski, Baudrillard, Deleuze/Guattari, and Lyotard, who smash the concepts of political economy into brick walls to see what remains intact—the concepts or the wall. And yet, The Blank Swan is so much more. The syntax of options (‘optionetics’, to pilfer a lovely phrase) lies entirely outside the purview of post-Marxist ‘critical’ theory that has grown crusty at best, procrustean at worst. “Cantor’s transfinite seems to be materially operative in our derivatives world,” notes Ayache (après Meillassoux), as derivatives create new intensive ‘surfaces’ on which yet more exotic derivatives can be written. The market is therefore untotalizable, im-probable (beyond the very category of probability); it is not meaningful to speak of ‘capitalism’ as such.
As with Nietzsche or Niels Bohr, to write ‘about’ Ayache places the preposition in conflict with itself. “The market proposes a way of thinking of the future that is no longer mediated by knowledge” (2006: 34). One tries to find a position from which to describe, or critique, but finds the ground pulled out from underneath: “The market never starts. You are immediately in the middle of it or you are nowhere.” (Local, 12:27–12:44). Philosophical ‘depth’ has no meaning for the surface of the market, in which “the infinite is often the best approximation of the finite” (2007: 262). Thus the following interview is not an introduction to Ayache’s work, but outlines some less obvious aspects that help to illuminate the whole.
In one of your essays you said that Meillassoux referred to your notion of the market as an ‘arché-market’, but it’s not clear to me how it’s analogous to the arché-fossil. Could you explain the link?
If I understand Meillassoux well, arché-fossil is what provides evidence to science that dates back to days when thought and as a matter of fact life didn’t exist and when givenness of being to thought didn’t exist; so arché-fossil is the the light reaching from the outermost recesses of the universe or the fact that decaying isotopes can help science to establish contact with periods of time that predate thought, etc. Arché-market is something different. In conversation with Meillassoux, I once pointed to him that the ‘market’ wasn’t limited to my eyes to the financial market or even to the market in the sense of exchange of goods against prices. Rather, the market was a new logic or a new category of thought, a medium that conducts contingency ‘instantaneously’ without the apparatus of possibility and probability. Ideally, I wanted to convince him that my ‘market’ is the register where his whole factual (i.e. non metaphysical) speculation should be conducted. He then advised me to no longer call this category by the name of ‘market’ but, in order to avoid confusion, by the more venerable ‘arché-market’. For one thing, a contingent event can make the ‘market’ disappear; however, the arché-market as higher category and register cannot disappear as it is the very medium of contingency.
How does your philosophical position account for the fact that relativistic effects cause minute differences in the ‘same’ price in different regions of the world, noticeable only on the nanosecond scale in HFT? This strikes me as a crucial issue for your own theory, especially since you focus on the market as ‘surface’, whereas relativistic arbitrage would imply ‘ruptures’ in this surface.
HFT is not really my cup of tea. It is a necessary and unavoidable development of the technology and this is all that I have to say. Financial theory holds that prices should verify arbitrage instantaneously and I can only welcome a technology that now applies this ideal requirement of financial theory. Doubtless financial theory understands ‘instantaneous’ arbitrage in pre-relativistic terms and doubtless there must be interesting extensions of arbitrage to relativistic physics, and doubtless the HFT technology may be hitting on that limit. However, all this is of no interest to me; the market is not equal to HFT. Sadly, HFT is distracting the attention of thinkers and of philosophers away from the hard problem of the market, which is the real metaphysical and ontological problem that derivatives pose. Surely HFT is attracting money and investment from the banks and surely the sociology of finance should look into it. However those banks are (in my opinion) investing in HFT because they have abandoned the thought of derivatives. The hard problem of the market is the smile problem. To solve the smile problem you need something else than probability; you need a new metaphysics. This is what I am trying to develop both technologically in my company (ITO 33) and philosophically in my personal research and writing. The smile problem is simply that statistics and the corresponding paradigm have to be replaced by the prices of contingent claims. The smile problem is that we imply volatility from the option instant prices and not from the historical series of prices of the underlying. Why this is essential and not accidental, why this is a crucial problem and not just an ‘approximation’ or a temporary defect of the theory/technology, is a question that I am still amazed that neither the bankers nor the quants nor the philosophers of probability have started to tackle. And why are derivatives so important? Because the definition of the market to me is the place where underlying and derivative trade on the same level and floor. Why a surface? Because of this identity of levels and absence of depth or hierarchy between underlying and derivative. There are no possibilities and states of the world underlying the prices of the underlying and consequently evaluating the derivatives. All there is is the surface of prices of derivatives and derivatives on derivatives. While derivatives can certainly be traded by HFT as proxys of the underlying, the problem which they pose really, or the smile problem, is a very ‘slow’ problem in the sense that it requires calibration and recalibration to all the prices of all derivatives written on that underlying at once. To repeat, time and time series are not the proper dimension here. Place and writing is.
What is your opinion of Taleb’s latest book Antifragile?
I think Antifragile is a very clever concept. Taleb is trying to generalize convexity (of options) to life and beyond the strictly financial realm. But with this he is becoming less and less of a dynamic trader and more and more a fan of static hedging (take care of your losses and your profits will take care of themselves). By contrast, I advocate dynamic hedging and the dynamic trading of derivatives. There is a constant battle between convexity and time decay (the cost of convexity) which Taleb seems to (want to) ignore. This battle is what the dynamic market is all about. My work is to try to generalize the matter or the category of the market beyond the financial realm.
How did you discover philosophy? When did you become interested in writing?
At the age of six, on my way to school, I once wondered whether the pedestrian crossing the street in front of me would have accomplished the same act and crossed the street if, for some reason that day, say because of illness, I had not gone to school. Then I realized that I wouldn’t have been there in the first place to even notice the pedestrian and even conceive of his being.
When I found myself stuck in a military camp in Lebanon in 1982 with nothing really interesting to do and wasn’t allowed to travel to France to study. I then discovered how writing was there and had nothing to do with time.
Like many readers, I have a hard time getting my bearings in Part III of your book, despite your insistence that it’s the most important part. You claim that the virtual cannot be theorized, only narrated, which is understandable (and reminiscent of Lyotard’s Libidinal Economy), but your writing often reads more like a Hegelian bildungsroman than like Deleuze. Could you perhaps spell out what you’re trying to do in Part III? Why did you choose Barton Fink, of all films?
Barton Fink is the key to my philosophy. From possibility (Barton Fink in his room) to the total of possibilities (Karl Mundt) to the writing surface (the liberation of Barton Fink at the end). Also notice that he ends up writing the same play as in the beginning of the movie, in true Menard fashion.
Part III: The book is the arché-arché-market
Most of your essays over the past few years have been revisions to The Blank Swan. Have you thought of writing another book, perhaps a sequel of sorts? (Or does your book place under erasure any attempt at doing so?) If so, what sort of problems and material would you want it to address?
I am currently completing a book. More strictly critical of financial theory. More metaphysical. Better. Harder.