Ubiquitous derivatives

By Emanuel Derman
June 28, 2011

Having spent a large part of my life working on options and volatility, I tend to see options everywhere. In my forthcoming book I write about Spinoza, a deep theorizer (and not a  modeler), who regarded all emotions as derivatives of the underliers pain, pleasure and desire, just as financial options are derivatives of the underliers of equity, fixed income and credit.

Spinoza spelled this the dependency of the higher order emotions on their underliers. Here below is a color diagram that illustrates his theory. I parsed all his definitions and converted them into this chart. It’s similar to what people do for setting up structured products in their trading systems. I originally drew it in color:


My publisher Free Press, suitably frugal in these hard times for publishers, won’t print it in color and so I had to convert it to b&w, also reproduced below:

Doing the conversion was quite an interesting if time-consuming job, because in b&w you have to use shape and font to convey the similarities and dissimilarities that can be more easily transmitted with color. (Cancers tend to gravitate to obsessive tasks that require never giving up.)

4 comments

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Prof. Derman,
re Map of Emotions:
You might find the work being done in Singapore of interest
http://lovotics.com/
I was alerted to it via KurzweilAI.net
The implications for AI and learning machines e.g. Watson is important as I have thought for a very long time that the inability to “tag” objects and concepts with an emotional value was a major weakness in AI, machine intelligence and ultimately robotics

Posted by arel | Report as abusive

I’m not a big AI fan, and so at first I was skeptical of your link, but it actually looks interesting. I will watch the video. Thanks. Reminds me of Galatea 2.2 by Richard Powers, 1995 book, on Wikipedia, which I liked.

Posted by EmanuelDerman | Report as abusive

Professor Derman,

I urge you to harangue the production staff at Reuters for more support with tasks such as image uploads. I tried very hard to read both versions of your Map of the Emotions, particularly the “color to black&white translation”.

Despite having an excellent video graphics card, high resolution display monitor, and cranking up the magnification to various levels between 1.5 and 3.0x, I was unable to achieve the same clarity typical of most images on the web. I could discern a few details, like your interesting choice of type face (it was Dante-esque, or maybe Toulouse-Latrec-ish). And I preferred the cloud-like thought bubbles for the three anchor emotions in your black&white version to the bland rectangles in the color chart. In fact, your translated chart was more effective in general, from what I could tell.

But all that effort you put into this should not go to waste! I want your blog on Reuters to be successful! (I am an operations research, M.B.A. finance, probability-statistics sort, you see). You must be given adequate production support so that your work can be fully appreciated!

P.S. I am not a big AI fan either. That entire singularity business is far too vaguely defined for me (not Kurzweil’s fault). Unfortunately, it also evokes thoughts of the Charles Stross version of “technological singularity” too. You might find that interesting, by the way.

Posted by EllieK | Report as abusive

I think Reuters has a lot on their plate besides me, but I will try mild haranguing. I’ve had trouble getting figures done nicely for my book too (these figures will be in it). But a book is ostensibly a permanent thing, so I expect them to take more care. A blog is meant to be more casual, so maybe sloppiness is OK. In the early days of the web there were people who seriously argued that the web was about info, not appearance, and that you shouldn’t aim for careful formatting. With a publisher, I expect more, but not clear that that’s the way it works.

Posted by EmanuelDerman | Report as abusive