Elie Ayache was born in Lebanon in 1966. Trained as an engineer at l'École Polytechnique of Paris, he pursued a career of option market-maker on the floor of MATIF (1987-1990) and LIFFE (1990-1995). He then turned to the philosophy of probability (DEA at la Sorbonne) and to derivative pricing, and co-founded ITO 33, a financial software company, in 1999. Today, ITO 33 is the leading specialist in the pricing of convertible bonds, in the equity-to-credit problem, and more generally, in the calibration and recalibration of volatility surfaces. Elie has published many articles in the philosophy of contingent claims, as well as a book, dedicated to the philosophy of writing.

Introduction xv

Part I Writing and Event 1

1 Writer of The BLANK Swan 3

1.1 Prediction versus Prescription 3

1.1.1 My private Black Swan 3

1.1.2 Pierre Menard's trading room 4

1.1.3 Probability, replication, context and beyond 4

1.1.4 Contingency 5

1.1.5 The process of change of contexts 6

1.1.6 Writing the Black Swan 7

1.1.7 Finding the context in The Black Swan 8

1.1.8 Writing backwards 9

1.1.9 Poetry and The Black Swan 10

1.2 Generalizing Prediction 11

1.2.1 Postponing history 11

1.2.2 Incompatible contexts 11

1.2.3 Knowledge as prediction 13

1.2.4 True empiricism 14

1.2.5 Meta-contextual prediction and backward causality 15

1.3 The Derivatives Market 18

1.3.1 Possibility, capacity and the market of contingent claims 18

1.3.2 Market mechanics 19

1.3.3 Price and the implicate ontology 19

1.3.4 Technology of the future 21

1.3.5 Context change and the necessity of jumps 23

1.3.6 The 'derivative-derivative' trader 24

1.3.7 Bringing the Black Swan to nest 25

1.3.8 The regime-switching model as a meta-contextual pricing tool 26

1.3.9 'Transcendental deduction' of the derivatives market 27

1.3.10 A return to history 28

2 The Writing of Derivatives 31

2.1 First Steps on the Surface 31

2.1.1 Theoretical speculation versus speculation 32

2.1.2 Rethinking probability 33

2.1.3 Nonarbitrage 34

2.1.4 Writing, difference and deferral 37

2.1.5 Reality of the market: the virtual 38

2.2 Introducing Contingency 40

2.2.1 Derivative writing as an alternative to metaphysics 40

2.2.2 Inverting the logic 41

2.2.3 Present value versus present price 42

2.2.4 Derivative technology 43

2.2.5 From derivatives to contingent claims 45

2.2.6 The medium of contingency 46

2.2.7 Possibility versus capacity 47

2.2.8 Immanent differentiation and univocal contingency 49

2.3 The Pricing Surface 51

2.3.1 Reversibility of pricing and absolute market 51

2.3.2 Price and exchange 54

2.3.3 The two faces of price and reversion to the surface 55

2.3.4 The liquidity and the fold of price 56

2.3.5 The new metaphysics of liquidity and of the past of prices 58

3 The Event of the Market 61

3.1 From States of the World to Market Prices 61

3.1.1 The market, a place of exchange not of prediction 61

3.1.2 Value versus price 63

3.1.3 Elements of financial valuation theory 63

3.1.4 The advent of derivatives and market prices as states of the world 64

3.2 The Black-Scholes-Merton Paradigm 65

3.2.1 Price process and Brownian motion 65

3.2.2 The Black-Scholes revolution and derivative pricing theory 66

3.2.3 The dynamic replication of derivative instruments 67

3.2.4 A universal pricing formula 68

3.3 The Critique of Derivative Pricing Theory 70

3.3.1 The real consequences of derivative pricing theory 70

3.3.2 The very special mode of being of the market 71

3.3.3 The market as given 72

3.3.4 The market as the 'inversion' of theory or the ambivalence of price 73

3.4 The Necessity of Meta-Contextual Ascent 75

3.4.1 A new 'logic' for a new science 75

3.4.2 New generations, endless generation 77

3.4.3 The necessity of the context and the necessity of its surpassing 77

3.4.4 A meta-contextual pricing tool 79

3.4.5 Technology of the future versus knowledge of the future 82

3.4.6 The performative surpassing of representation and possibility 83

4 Writing and the Market 87

4.1 Pierre Menard 87

4.1.1 The reality of contingency 87

4.1.2 The im-possibility of history 89

4.1.3 Writing history 91

4.1.4 The very sad writing of Pierre Menard 92

4.1.5 The differential definition of writing and the unpredictability of the Quixote 95

4.1.6 The past of possibility 97

4.2 Reading and Writing 100

4.2.1 The significance of replication and the turn to the virtual 100

4.2.2 Writing as forgetting 103

4.2.3 Anti-memory as trading and literary creation 104

4.2.4 The resurfacing of writing 107

4.3 Approaching the Market 108

4.3.1 Univocity of the market 108

4.3.2 Immanence of the market 111

4.3.3 The sense of the market 113

4.3.4 Announcing the genesis of the market 115

4.3.5 Originality of price and of the market 116

4.3.6 The Blank Swan 118

Part II Absolute Contingency and the Return of Speculation 123

5 The Necessity of Contingency 125

5.1 Against Speculation 125

5.1.1 Writing history (reprise) 125

5.1.2 The writer's (and trader's) body 126

5.1.3 Beyond possibility, capacity and ethics: a political interlude 128

5.1.4 State of power 129

5.1.5 The absolute 131

5.1.6 Absolute irony 132

5.2 Speculative Materialism 132

5.2.1 Speculative metaphysics 132

5.2.2 The shortcoming of Kant's critical philosophy 133

5.2.3 Meillassoux's proposition: the absolute necessity of contingency 134

5.2.4 Is the absolute thinkable? 136

5.2.5 The absolutization of facticity 137

5.2.6 Positively thinking the absolute 138

5.2.7 Chaos, yet not without structure 139

6 Passage to the Future 143

6.1 From Possibility to Inexistence 143

6.1.1 The passing of the possible 144

6.1.2 Factual ontology 145

6.1.3 Cantor's set theory as meta-ontology 146

6.1.4 Factual derivation of the un-totalization 147

6.1.5 Effective contingency versus absolute contingency 148

6.1.6 Speculative result versus metaphysical result 149

6.2 The Passage 150

6.2.1 The future and the world 150

6.2.2 Passage to the future 151

6.2.3 Gravity of the world 152

6.2.4 The quality of happening 153

6.2.5 Turning the future on 155

6.3 The Future 156

6.3.1 Badiou and Deleuze 156

6.3.2 Ontologizing the passage 157

6.3.3 Cutting to the future 158

6.3.4 A paper rotation 159

6.3.5 Keeping only the future 160

7 Necessity of the Future 163

7.1 A Model World 163

7.1.1 Derivatives world 163

7.1.2 The event of trading the derivative 164

7.1.3 Exchange as fundamental ontology 166

7.1.4 The market as the exchange of knowledge 167

7.1.5 The market as the process of history 168

7.1.6 Arche-exchange 168

7.2 The Implied Absolute 169

7.2.1 The absolute is in the inversion 169

7.2.2 Why derivative pricing is not a human science 171

7.2.3 The implied volatility smile is the absolute truth 173

7.2.4 Implication is faster than thought 174

7.2.5 The market as the last absolute 175

8 Necessity of Writing 177

8.1 Radical Speculation 177

8.1.1 Elevating implication 177

8.1.2 The 'What?' question 178

8.1.3 Thinking speculation reflexively 178

8.1.4 Critical speculation 179

8.1.5 Absolute speculation 181

8.1.6 Implication as the radicalization of speculation 182

8.2 The Pricing Alternative 183

8.2.1 Price as a crossing 183

8.2.2 The absolutization of mathematics 183

8.2.3 The mathematics of price 184

8.2.4 Price as the exchange of metaphysics and possibility 186

8.2.5 The 'letter' of the necessity of contingency 187

8.2.6 Immanence and materiality of price 188

8.3 From the Market to Work 189

8.3.1 Price is the other of thought 189

8.3.2 Meillassoux's body 190

8.3.3 The work (of the trader, of the poet) 191

8.3.4 Writing the world 192

Part III Flight to Sydney, Or the Genesis of the Book 195

9 The Mathematics of Price 197

9.1 The Absolute without Thought 197

9.1.1 Mathematical thinkability 197

9.1.2 The absolute without necessity 199

9.1.3 Impossible exchange 201

9.1.4 Writing as nonmetaphysical speculation 203

9.2 The Absolute within Thought 205

9.2.1 Philosophy of the event 205

9.2.2 Necessity as tension 208

9.2.3 The event of thought 209

9.2.4 Deep necessity versus superficial speculation 211

9.2.5 The cohesion of thought 212

10 Barton Fink 217

10.1 The Pledge 217

10.1.1 Passivity of thought and the exchange surface 217

10.1.2 Fiction, fabrication and dynamic programming 219

10.1.3 The first mark on the surface 221

10.1.4 The partition 222

10.2 The Turn 224

10.2.1 The turn of the world 224

10.2.2 The violence in movie-making 225

10.2.3 The probability distribution 228

10.2.4 Partition of the world and shoe distribution 229

10.2.5 The bellhop 232

10.2.6 Time frame and deadline 233

10.2.7 Woman, or the end of the partition 234

10.2.8 The sum total of possibilities and the problem in the head office 235

11 The Narrative Adventure 237

11.1 The Line of Flight 237

11.1.1 The other end of the world 237

11.1.2 The book of derivatives 238

11.1.3 Tour du monde versus point of the world 239

11.1.4 Flight to Sydney, or the retro-adventure 241

11.2 The POINT of the World 243

11.2.1 Flight to the virtual 243

11.2.2 Eternal turn versus eternal return 246

11.2.3 Writing after the departure of possibility 247

11.2.4 The narrative from the point of the world 249

11.2.5 The Australian bank, book and market 250

12 Out of the Box...