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Digital Subscriptions > The Hedge Fund Journal > Issue 106 - August 2015 > Volatility


The allegory of the Prisoners’ Dilemma

Christopher R. Cole is the founder of Artemis Capital Management LP and the portfolio manager of the long volatility biased Artemis Vega Fund LP. Christopher’s core focus is a systematic, quantitative, and behavioralbased trading of exchange-traded volatility futures and options. He previously worked in capital markets and investment banking at Merrill Lynch. Christopher holds the Chartered Financial Analyst designation, is an associate member of the NFA, and graduated magna cum laude from the University of Southern California.

The famous journalist Dorothy Thompson once said peace is not the absence of conflict; there is a form of peace and stability that is in fact reinforced on a foundation of underlying conflict and volatility. Game theorists call this the paradox of the Prisoner’s Dilemma and it describes a dangerously fragile equilibrium achieved through competition. It is also the most important concept to understanding modern markets.

Consider this: over 10 thousand years of human civilization and today is the best time to be alive in the history of the world. We have the most peace, the most stability, and the highest living standards. This comes simultaneously with great risk. Today we have the ability to destroy our planet through resource depletion, and we have the ability to destroy ourselves through nuclear Armageddon. We have the greatest stability with the largest tail risk in the history of human civilization. Peace exists exactly because of hidden conflict; this is Prisoner’s Dilemma.

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About The Hedge Fund Journal

INFORMING THE HEDGE FUND COMMUNITY With access to some of the industry’s biggest names and an astute and talented group of writers and contributors, The Hedge Fund Journal has established itself as a trusted source of information on the hedge fund industry. Highlights of Issue 106: Championing Customization: Amundi Alternative Investments Tackling UK Farming’s Funding Shortfall: Helping reform UK’s agriculture and alternative energy industries Shareholder Activism as Private Equity Allocation: The resurgence of the strategy a decade after first rising CME Group Crude Oil Spread Options Suite: Volumes advance with screen-based trading growing fastest Adding Dynamic Beta to Double Alpha: UBS Equity Opportunity Long Short UCITS