Karel Volckaert is a wealth strategist. He lives with his family in Gent, Belgium.

His interests include value & risk, public finance, and earth system science.

He rides a Cannon- dale Synapse 105, swears by Finnegans Wake and thirsts for a taste of Heitz Wine Cellars' 1974 Martha's Vineyard.

Money management without the money

As a rule, securities to invest in are produced at zero cost. The financial institutions that manufacture and (have) issue(d) derivatives or structured products or any other type of investment typically do so without using their own cash. By exploiting the relationships among existing and new financial instruments, the financial engineers tend to balance the asset and liability side, or the cash inflow and outflow of such construction.

The transactions underlying covered interest rate parity provide a textbook example: spot exchanging an amount between two currencies, earning interest on that amount in the corresponding deposits and entering into the appropriate forward foreign exchange contract should even out one or the other way. The arbitrage-free links among these financial instruments allow to “synthesise” any of them through the right combination of the other components that act as an offsetting hedge to the security they sell to their clients. In fact, market practitioners would even prefer not having to deposit or borrow cash, especially not in a foreign currency. Swaps and similar instruments that require no cash outlay — i.e. have a zero market value — at the initial date are the weapons of choice in financial engineering.

The crucial point is that market practitioners in general are not interested in ownership as much as in exposure. You could ask  the same about regular investors, their clients. Do money management clients actually want to own the securities they care to invest in, say shares of Tesla Motors? Or are they content with their managers creating exposure, access, to the rate of return these shares will enjoy? Is a “synthetic” share sufficient? → Read More

How financial markets stabilise investment strategy

Price is relative. Any price — whether a share price, a discount factor or a foreign exchange rate — establishes a connection among different securities. Pricing is replicating: expressing a given security in terms of other securities – or “trading strategies” in the event some of the securities involved “live” at different points in time. Because hedging in turn is equivalent to replicating, pricing is too.

Typically, multiple alternative strategies are available to price/replicate/hedge a given exposure. The alternatives differ in particular in terms of the financial markets where the constituent securities trade. The characteristics of these markets are not (only) an annoying side effect; they are crucial to the financial system’s well-functioning. → Read More

Mathematicians do it better

I do not know then in what manner
questions that only minimally regard mathematics
are solved more quickly by mathematicians than by others.

- Leonhard Euler

King’s mountain

A besieged Gdańsk. More than four months now Stanisław Leszczyński has been waiting in vain for relief to arrive from his son-in-law, Louis XV of France. → Read More

The LIE of science

When discussing science, we typically distinguish between theory and practice. William Feller, in the introduction to his monumental An introduction to probability theory and its applications [sic], enlarges this dichotomy to an interdependent triangle: the formal Logical content, the Intuitive background and the applications or physical Experience – the LIE of any scientific discipline. A similar reasoning shimmers through the first lines of that other monument, Richard Courant’s What is mathematics? “Mathematics as an expression of the human mind reflects the active will, the contemplative reason, and the desire for aesthetic perfection.” → Read More

One, two, three cultures and counting

Is it dangerous to an individual or to society that a void has opened among the various types of knowledge, of culture? Has it diminished our (individual and combined) capacity to “produce future”? Does it make us less humanior? Less universal? → Read More

The capitalist superstructure

Capitalism and market economy ought to be distinguished from one another. In the latter, “perfect” competition reigns; capitalism however is dominated by monopoly. → Read More

Confirmation and falsification

Understanding is reducing. Consolidating the number of categories of entities, unifying laws of motion and attraction, generalising concepts of reasoning. Constructing theories and schemes and ideologies.

The tendency then is almost unescapable to try and integrate everything we come across in the same, pre-existing narrative. We easily succumb to confirmation bias.

Of course, we know we ought to act the other way around. Consider our world view as the hypothesis we aim to reject. Falsify what we hold dear, rather than gather evidence for it. That means we must foremost value each and every particularity in itself, and not bestow the primacy on theory. It means we need to rethink Thomas Sowell:

Facts do not speak for themselves. They speak for or against competing theories. Facts divorced from theories or visions are mere isolated curiosities.

The praxis of particularities is a treasure trove out of which wisdom can be gleaned.


Pure quantum magic

One of the truly magical moments in the history of physics: May 1925, Werner Heisenberg “re-interprets” the classical idea of (precise) location. → Read More

What you cannot not do

In game theory, ask not what you can do, ask what you cannot not do. → Read More

Leeswijzer [Goethe]

Die Duitsers toch, verwonderde Goethe zich: altijd op zoek naar diepe gedachten en abstracte ideeën in mijn werk! Ze maken zich het leven moeilijker dan nodig. Heb toch de moed om je aan je indrukken over te geven, je te laten verblijden [ergötzen] en ontroeren. De lezer die genietend oordeelt, en oordelend geniet; die recreëert eigenlijk een kunstwerk opnieuw.

Veel van onze belevenissen laten zich niet rechtstreeks meedelen. Maar door de levenden een spiegel voor te houden, openbaart zich toch de zin aan wie opmerkzaam is. Eigen je de “psychisch-zedelijk-esthetische” vraagstukken toe die ik vrijgevig in mijn werk rondstrooi, en helder daardoor de raadsels uit jouw leven op. Wat daarbij duister schijnt, prikkelt de mensen, zoals alle onoplosbare problemen.

Wie al iets ongedaan heeft en het één en het ander meegemaakt, die zal er meer in vinden dan ik geven kon.