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The Future of Price

The Future of Price is a themed series of articles authored by Chris Yapp, Michael Mainelli and guest contributors on new directions and challenges in the theory and practice of Price. The series builds on the book The Price of Fish authored by Michael Mainelli and Ian Harris. In the fast paced and globalising world, current theories and practice on pricing are increasingly inadequate for us to know that our financial system is working, the key question Long Finance seeks to address.

The series will explore Price in relation to rising global inequality, volatility, scarce natural resources, the economics of abundance and the digital economy. Since the crash of 2007-2008 the wealthiest have increased their wealth significantly faster than the mass of the population. To what extent have the policy tools such as QE contributed to that disparity? The pricing of positional goods creates new challenges to the supply-demand curve models. In The Price of Fish, the authors pointed out gaps, holes and clouds in these curves. Now we would like to go further and look at new potentialities such as orthogonal supply-demand models. Can both go up, or both go down? The price of oil and many other commodities have shown greater volatility than can easily be justified by changes in demand. To what extent do we still believe in 'price equilibrium' post 2007-2008? Even if we cling to notions of equilibria can we understand the difference between stable and unstable equilibria in current notions of price? Pricing for sustainability of diminishing resources, especially when sourced from unstable regions and countries could create shocks to the system comparable to the oil shocks of the early 70s. At the same time, especially in the digital economy, the economics of abundance and price setting around notions of Free and Freemium create interesting challenges, especially on valuation of digital stocks using Free/freemium models in a B2C environment. Finally, the development of reverse auctions and tournaments offer new models for price setting which we would like to explore.

Other topics will no doubt arise, as the authors develop the individual arguments. This email address is being protected from spambots. You need JavaScript enabled to view it. if you think that any areas for debate and development have been missed.

All articles are available on Long Finance's blog the Pamphleteers, as follows:

Folklore, Myths & Finance

Folklore is the study of traditional customs, beliefs, stories, and sayings, ideas or stories that are not true but that many people have heard or read. Myths are traditional or legendary stories, usually concerning some being or hero or event, with or without a determinable basis of fact or a natural explanation, especially one that is concerned with deities or demigods and explains some practice, rite, or phenomenon of nature.

In 2015, Robert McDowall, Vice-President of the Folklore Society and a regular contributor to Long Finance's blog the Pamphleteers, contributed a series of articles on folklore and finance to the blog, as follows:

Relevant Events

Relevant Articles

Carbon - Burn it all?!

"What happens if we burn it all?" (i.e. burn all known reserves on balance sheets) is the question Michael Mainelli and Jan-Peter Onstwedder asked the BP and London Accord teams back in 2006, based on the concern that finance was not valuing carbon properly. Z/Yen’s Dr Kevin Parker (ex BP chemist) pulled together the spreadsheet “Global Warming”, for the total ppm results of burning current known reserves. Jan-Peter Onstwedder had a look from the point of view of the head of risk at BP. BP’s research team did their own digging and both sides effectively came up with the same numbers.

Figure 1 - CO2 levels caused by burning known fossil fuel reserves

With fracking and shale gas the numbers get higher, about 1600 ppm.

The London Accord shared this with Mark Campanale back then who, working with Nick Robins of HSBC, took this forward to create Carbon Tracker with James Leaton. Their first report “Unburnable Carbon: Are the World’s Financial Markets Carrying A Carbon Bubble?” was highly commended for the Farsight Award 2011/12.

More information

Related London Accord reports

Distributed Futures: Distributed Ledgers, Blockchains and Cryptocurrencies

Cryptocurrencies such as Bitcoin rely on cryptography and a decentralised peer-to-peer network. There are now over 600 identifiable alternative cryptocurrencies (also known as AltCoins), such as Ixcoin, Ripple, LiteCoin, Dogecoin, Primecoin or Riecoin.

The essential cryptocurrency innovation is a public blockchain that eliminates the need for a central counterparty to act as a third party to financial transactions. Trust in a counterparty changes to trust in the technology. Blockchain technology is interesting in that if provides a public ledger containing the full history of transactions, is secure and private and seems indestructible.  However, blockchain technology is only a subset of mutual distributed ledgers, a field in which Z/Yen pioneered in 1995.

Distributed ledgers technology are being applied to other sectors of activity including finance. Ideas for further applications include corporate voting, smart contracts, registries (ships, aircraft, tax, artworks etc.), identity blockchains for anti-fraud protection or anti-money laundering.

Distributed Futures on Film

 

Related projects

  • MetroGnomo – an open-source experimental timestamping service based on Z/Yen's ChainZy mutual distributed ledger technology. MetroGnomo’s replicated authoritative immutable ledger improves coordination, cooperation, integration and dispute resolution between firms through the provision of impartial timing information and unique universal identifiers. More Information...
  • IntereXchainZ: building on the successful InterChainZ project, IntereXchainZ extends mutual distributed ledgers to build a functioning marketplace More Information...
  • Distributed Futures Forum - a forum for senior people to meet and network with a group of their peers four times a year and share intelligence on mutual distributed ledgers, cyrptocurrencies, blockchains, FinTech, RegTech, and other interesting topics where disruptive technology meets finance. More information...
  • The Impact and Potential of Blockchain on the Securities Transaction Lifecycle - there is considerable interest in the potential use of ‘blockchain’ in the settlement of securities transactions.  Proponents argue that the use of cryptographic security tools to create blockchains (sequential, digitally signed and validated records of ownership) can allow almost instantaneous post-trade delivery against payment (DVP), thus radically simplifying post-trade processing and substantially reducing both costs and operational and liquidity risks.  The SWIFT Institute has commissioned Professor Michael Mainelli & Professor Alistair Milne, Loughborough University School of Business and Economics, to examine the impact and potential of blockchains and mutual distributed ledgers on the lifecycle of securities transactions. More information...

Historic projects

Related articles and reports

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Ethical Banking

Ethics and fairness are increasingly being recognised as topics of interest in finance, particularly with respect to banking and the relationship to investors and customers. Our thinking starts with "why build an ethical framework for banking if there are no ethical questions to answer?” What questions are worth pondering before seeking to set out an ethical framework or set of principles. “Is free banking ethical?” “Should banks quote APR on overdrafts?”
Long Finance's interest is in exploring what makes a 'Good Bank'. A Good Bank needs to be operationally good, i.e. a commercially successful vehicle for shareholders and other investors, as well as ethically good, i.e. acting correctly towards mankind. These two forms of good might be in opposition. Perhaps the biggest dilemma in providing an ethical framework is ascertaining the role of competition in such a framework. Ethically, it may be essential for a bank to promote increased bank competition.

Thus, we ask the following questions:

  • Who needs good banks?
  • What is an ethical framework?
  • Where do we need an ethical framework?
  • When would an ethical framework make a difference?
  • Why is an ethical framework insufficient?
  • How might we make a difference?

Possible answers and thoughts on these questions were presented during a lecture at the London South Bank University in March 2014.

Related project - Fairbanking

Since 2011, Z/Yen Group and Long Finance have conducted research to assist the Fairbanking Foundation, an independent research-based charity dedicated to encouraging and helping retail banks improve the financial well-being of their customers. The Foundation regularly publishes ratings of financial products based on how well they serve customers and recently became the first accredited body for financial products in the UK. More information...

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