The neutrino arbitrage

By Felix Salmon
May 4, 2012

Nick Dunbar has a good column today on how derivatives have followed physics from being clean to being messy. Once upon a time, both physics and derivatives had beautiful, simple models: quantum electrodynamics and Black-Scholes, respectively. But nowadays they’re both vastly more complex.

Physics has moved on to quantum chromodynamics, where complex interactions dominate the simpler ones and models get gnarly, while derivatives have found themselves in a world of counterparty risks and debit valuation adjustments and credit support annexes. Put them all together, says Dunbar, and the result is that the “derivative trading books at major banks lurch around like aircraft in a thunderstorm”.

All of which makes me very happy to see Bruce Dorminey’s column about a rather exciting possible application of high-energy physics to global finance. Remember the $1.5 billion being spent on transarctic fiber cables designed to cut a bit of latency between London and Tokyo? Here’s an even better idea: why not get rid of fiber cables entirely, and use neutrinos to transmit information, at the speed of light, right through the center of the earth?

At the very least, this could provide a fantastic revenue bump for physicists working at extremely expensive particle accelerators in a world of fiscal austerity. In order to make this happen, you’d need to either build your own accelerator, or lease some capacity from an existing one. The sums involved are both big enough to make physicists salivate, and small enough that the private sector could raise the money quite easily:

Learned says a one-way, earth-traversing setup might be constructed for as little as a $1 billion.

It also might be possible for a neutrino-communications startup to buy time on an existing accelerator, says Learned, in order to create and point a neutrino beam-line in the needed direction. Otherwise, private particle accelerators would have to be built from scratch.

But Haug contends that if a group of particle physicists had the right plan for the technology, Wall Street money “would be there” to make it happen.

If this was successfully implemented, price information from Sydney could reach New York in just 40.2 milliseconds, compared to the 84.4 milliseconds it takes to send that information on fibers around the surface of the earth. The difference is more than enough time for traders in New York to make real money arbitraging securities listed in both cities.

Indeed, it wouldn’t even need to be a Wall Street bank building this technology. Back in the 1850s, Paul Julius Reuter built the company I work for today by leveraging state-of-the-art low-latency technology: the undersea cable between Calais and Dover. Maybe David Thomson can do the same with neutrinos. He might even be able to find jobs for a few of those physicist-quants laid off by Wall Street in recent years.

11 comments

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While sending neutrinos through the earth is not so hard, detecting them on the other end such that the vanishingly small fraction of interacting particles codes for anything meaningful is another story.

Neutrino detection is so hard that experiments such as that in Italy beaming them through the Alps come up with bizarre results like neutrinos traveling faster than light. (Which nobody, not even the physicist who presented those results, believes to be true. It is at this point a curiousity and a group in the USA is trying to reproduce it.) Real-time detection of neutrino flux must compete with background noise to be noticed.

Tens of billions of neutrinos pass through each square centimeter of your body every second, with virtually zero effect.

The amount of energy required to produce detectable levels of neutrinos is very high. This would be an incredibly energy-inefficient method of communication if it could be made to work.

And of course, if it were possible to create a detector and coding scheme that worked well enough, neutrino communications would be the most perfectly insecure method ever.

This sort of proposal is the kind of thing that gets picked up by con-men who cobble together some apparatus that investment bankers haven’t a clue about.

But then, hmm. Maybe I should. Make a bundle.

Posted by BrPH | Report as abusive

Seems like a good idea. But, there are a few issues…Unless only one-way communication is desired, two neutrino generators (particle accelerators) will be needed to send messages. Actually, this may be a small issue. There are desk-top accelerators currently in use.

The main problem is, based on current neutrino detection capability, the receivers (neutrino detectors) would; a) need to be very large, and b) need to be protected from the multiple other sources of neutrinos and neutrino generating particles. “a” makes receivers expensive, and “b” is why the current detectors are located deep under the ground, or under the ocean, or deep in the ice. These requirements limit the receiver location, and add to the cost of neutrino communication. Also, with the possibility of interference from other sources of neutrinos, comes the possibility of miscommunication.

Posted by tflahive | Report as abusive

“Once upon a time, both physics and derivatives had beautiful, simple models: quantum electrodynamics and Black-Scholes, respectively. But nowadays they’re both vastly more complex.”

But the big difference is that QED was, in its domain, an extremely successful theory that matched experimental results to a high degree of accuracy. Other quantum field theories have been built on its foundation, to describe larger aspects of particle physics, but QED itself has never been superceded.

One could not make this claim about Black-Scholes.

Posted by Moopheus | Report as abusive

Well, there’s a bandwidth problem. Exactly how many neutrinos would you have to capture (above noise) to get a signal that would be profitable enough to pay for the project? You need to know that number because there’s also an itsy-bitsy detection problem– the linear dimension of a detector that would capture, say, half the neutrinos in a beam is on the order of light-years. Yes, light-years.

Posted by MattF | Report as abusive

Detection-schmetection.

If some college dropout can get $87 billion for automating 20-somethings’ address books, I’m sure my colleagues on Wall Street can drum up a few billion for this excellent notion.

Posted by EpicureanDeal | Report as abusive

That is, investors have funded plenty of business plans in which the likelihood of producing potential future economic value makes detecting a single neutrino look almost certain.

Posted by EpicureanDeal | Report as abusive

So, all this investment to save 44 milliseconds. And the rationale is for arbitrage? And that arbitrage disappears as soon as the other guy gets access to the same technology?

I’ve got a bridge for sale…

Posted by Bernanke | Report as abusive

And if neutrinos can go faster than light, you could tell somebody in New York about a cabinet shuffle in Tokyo before the cabinet even HAD been shuffled in Tokyo.

Okay … that faster-than-light thing turns out to have been some sort of technical glitch. One can dream, though.

Posted by Christofurio | Report as abusive

“right through the center of the earth”

So, neutrinos don’t interact with 10^24 kg of rock, but can be easily picked up at the other end by a hypothetical $10 gizmo that does what the entire planet can’t; stop a neutrino.

Posted by Thadah | Report as abusive

as indicated above, they are especially good for sending information that does not need to be received.

Posted by q_is_too_short | Report as abusive

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