The Fear Index

could be wiped out the moment the market recovers.’
    ‘And is the market recovering?’
    ‘No, I accept that at the moment the Dow is falling.’
    ‘Well, there is our dilemma, gentlemen, right there. We all agree that the fund should be hedged, but we also have to recognise that VIXAL has demonstrated itself to be a better judge of the markets than we are.’
    ‘Oh, come on, Hugo! There’s obviously something wrong with it! VIXAL is supposed to operate within certain parameters of risk, and it isn’t, therefore it is malfunctioning.’
    ‘I don’t agree. It was right about Vista Airways, wasn’t it? That was absolutely extraordinary.’
    ‘That was a coincidence. Even Alex acknowledged that.’ Rajamani appealed to Ju-Long and van der Zyl. ‘Come on, you fellows – back me up here. To make sense of these positions, the whole world would have to crash in flames.’
    Ju-Long put his hand up like a schoolboy. ‘Since the subject has been raised, Hugo, could I just ask about the Vista Airways short? Did anyone see the news just now?’
    Quarry sat down heavily on the sofa. ‘No, I didn’t. I’ve been rather busy. Why? What are they saying?’
    ‘That the crash was not a mechanical failure after all, but some kind of terrorist bomb.’
    ‘Okay. And?’
    ‘It seems that a warning was posted on a jihadist website while the plane was still in the air. Understandably there is a lot of anger that the intelligence authorities missed it. That was at nine o’clock this morning.’
    ‘I’m sorry, LJ. I’m being a bit slow on the uptake. What does it matter to us?’
    ‘Only that nine o’clock was exactly the time we started shorting the Vista Airways stock.’
    It took Quarry a moment or two to react. ‘You mean to say we’re monitoring jihadist websites?’
    ‘So it would appear.’
    Van der Zyl said, ‘That would be entirely logical, actually. VIXAL is programmed to search the web for incidences of fear-related language and observe market correlations. Where better to look?’
    ‘But that’s a quantum leap, isn’t it?’ asked Quarry. ‘To see the warning, make the deduction, short the stock?’
    ‘I don’t know. We would have to ask Alex. But it is a machine-learning algorithm. Theoretically, it’s developing all the time.’
    Rajamani said, ‘Then it’s a pity it hadn’t developed enough to warn the airline.’
    ‘Oh, come on ,’ said Quarry, ‘stop being so bloody pious . It’s a machine for making money; it’s not meant to be a sodding UN goodwill ambassador.’ He leaned his head against the back of the sofa and looked at the ceiling, his eyes darting, trying to absorb the implications. ‘God in heaven. I mean, I’m simply staggered by that.’
    Ju-Long said, ‘It could be a coincidence, of course. As Alex said this morning, the airline short was just part of a whole pattern of bets to the down side.’
    ‘Yeah, but even so, that’s the only short where we’ve actually sold the position and taken the profit. The others we’re holding on to. Which poses the question: why are we holding on to them?’ He felt a tingling along the length of his spine. ‘I wonder what it thinks is going to happen next?’
    ‘It does not think anything,’ said Rajamani impatiently. ‘It is an algorithm, Hugo – a tool. It is no more alive than a wrench or a car-jack. And our problem is that it is a tool that has become too unreliable to depend on. Now, time is pressing and I really must ask this committee formally to authorise an override on VIXAL and start an immediate rehedging of the fund.’
    Quarry looked at the others. He was good at nuances, and he detected that something had just shifted slightly in the atmosphere. Ju-Long was staring ahead impassively, van der Zyl examining a piece of lint on the sleeve of his jacket. They seemed embarrassed. Decent men, he thought, and clever, but weak. And they liked their bonuses. It was all very easy for Rajamani to order VIXAL to be shut down; it would cost him nothing. But they had received four million dollars each last year. He weighed the odds. They would give him no trouble, he decided. As for Hoffmann, he took no interest in the personnel of the firm apart from the quants: he would back him whatever he did. ‘Gana,’ he said pleasantly, ‘I’m sorry, but I’m afraid we’re going to have to let you go.’
    ‘What?’ Rajamani frowned at him. Then he tried to smile: a ghastly nervous rictus. He tried to treat it as a joke.