http://www.financial-math.org

http://www.m-a-f-f-i-a.org

**Three MAFFIA papers are on SSRN's Econometric/Math Methods All Time Top Ten list.**The Social Science Research Network's*Econometrics: Mathematical Methods and Programming eJournal*distributes working and accepted paper abstracts in the area of mathematical methods applied to econometrics. In SSRN's list as of 6 June 2015 of the All Time Top Ten papers (by download count), three papers from this list, namely #5, #7 and #10, are authored or co-authored by members of our MAFFIA research group. For details, see the Math Investor blog.**Backtest overfitting demonstration is now available.**An online simulator is now available to demonstrate the effects of backtest overfitting. The simulator "discovers" an "optimal" strategy, based on a computer search over backtest data, yet when this "optimal" strategy is tried on new data, it typically falls flat. The intent here is to demonstrate how easy it is to statistically overfit an investment strategy.**Tenure-maker overfitting demonstration is now available.**A related online demonstration, named the Tenure-maker, extends the demonstration of backtest overfitting to more general strategies.

We are also concerned with the proliferation of quasi-mathematical investment advice and financial columns in the past few years, which appear to be based on sophisticated mathematics and statistics, but which, upon more rigorous analysis, are at best questionable. We encourage the reader to search the Internet for terms such as "stochastic oscillators," "Fibonacci ratios," "cycles," "Elliot wave," "Golden ratio," "parabolic SAR," "pivot point," "momentum," and others in the context of finance. Although such terms clearly evoke precise mathematical concepts, in fact, in almost all cases, their usage is at best scientifically unsound.

Historically scientists have led the way in exposing those who utilize pseudoscience to extract a commercial benefit. Even in the 18th century, physicists exposed the nonsense of astrologers. Yet mathematicians in the 21st century have remained disappointingly silent with the regards to those in the investment community who, knowingly or not, misuse mathematical techniques such as probability theory, statistics and stochastic calculus. Our silence is consent, making us accomplices in these abuses.

This blog and website were established with these concerns in mind. Nonetheless, our approach here is not one of confrontation, but instead one of research to better understand and mitigate these difficulties, education to assist other professionals in the field, together with unbiased testing and analysis. If you identify with our concerns, let us know and spread the word. Together we can make a difference. Contact us at

Consider also joining our MAFFIA-News email list, to receive notices of articles, blogs and other items of interest to the financial mathematica arena (low frequency -- just one post every week or two). Just send us your Google-registered email address. To register a non-Gmail address with Google, go to the Google account page, then click on "I prefer to use my current email address."

<== This graph shows the trade-off between the number of trials |

- David H. Bailey, Lawrence Berkeley National Laboratory (retired), and Research Associate, University of California, Davis, Department of Computer Science.
- Marcos Lopez de Prado, Senior Managing Director, Guggenheim Partners, New York City; also Research Affiliate, Lawrence Berkeley National Laboratory.
- Qiji Jim Zhu, Professor of Mathematics, Western Michigan University.

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