Prof. Jayanth R. Varma's Financial Markets Blog

Photograph About
Prof. Jayanth R. Varma's Financial Markets Blog, A Blog on Financial Markets and Their Regulation

© Prof. Jayanth R. Varma
jrvarma@iima.ac.in

Subscribe to a feed
RSS Feed
Atom Feed
RSS Feed (Comments)

Follow on:
twitter
Facebook
Wordpress

December
Sun Mon Tue Wed Thu Fri Sat
     
27  
2010
Months
Dec
2009
Months

Powered by Blosxom

Mon, 27 Dec 2010

Einstein Nobel futures contract

Last week FiveBooks carried an interview with well-known Einstein biographer, Walter Isaacson, reviewing his favourite five books on Einstein. Isaacson discusses a very interesting futures contract related to Einstein’s Nobel Prize:

This is a great piece of writing and of research about Einstein’s relationship with his first wife who served as his sounding-board in the miracle year of 1905 when he discovers special relativity and lays the groundwork for quantum theory. Mileva Maric was a physics student at Zurich Polytechnic, and when she and Einstein met they fell madly in love.

...

When the passionate relationship exploded and Einstein wanted a divorce he couldn’t afford the money Maric wanted to raise their two boys. So Einstein says to her that one day he’ll win the Nobel Prize for his 1905 work and if she gives him a divorce he’ll give her the prize money when he wins. She takes a week to calculate the odds and consult other scientists, but she is a good scientist herself and she takes the bet. He didn’t win until 1921 but he did give her the money and she bought three apartment buildings in Zurich.

I was aware that Einstein gave the prize money to his first wife, but did not know that there was actually a futures contract (or more precisely a forward contract). Wikipedia has more details about the transaction. As I think carefully about it, this futures contract is actually quite hard to value:

Despite all these difficulties, the fact is that Mileva Maric was able to arrive at a reasonable valuation and conclude the negotiations. It is interesting to read that the information asymmetry was resolved not only by her own competence as a physicist, but also by consulting other scientists. This is similar to the use of rating agencies in debt markets.

In the real world, instruments do end up getting valued despite the theoretical difficulties involved. One of Einstein’s famous quotes is probably relevant here with suitable modifications: “God does not care about mathematical difficulties, he integrates empirically.”

Posted at 18:02 on Mon, 27 Dec 2010     8 comments     permanent link

Comments...

ketan wrote on Tue, 28 Dec 2010 18:09

Re: Einstein Nobel futures contract

There is another "theory" called Theory of Relatives & Match Fixing, which can predict future events with amazing accuracy, especially by syndication "scientist" partners !

Only this theory can explain ur observations (if that is what you were preempting /suggesting to begin with!)

IIPL, Slumdog Billion, etc, even the (declared) list is endless.

I am amazed by the global market-makers in ALL aspects of life !

reg ketan

Piyush Chourasia wrote on Tue, 28 Dec 2010 16:48

Re: Einstein Nobel futures contract

...Einstein obviously knew more about his own work than anybody else.

Add to it that by the same logic, he knew less of other's (competitor contenders) work, not to mention the over-valuation one seems to do of one's own work.

Krishna Kumar C N wrote on Tue, 28 Dec 2010 13:18

Re: Einstein Nobel futures contract

Dr Varma,

Respected Sir,

Ronald Coase got the Nobel prize after 60 years in 1991. The original work was published in 1931? He graduated in the year 1932.

Is his theorem being used to allocate "Spectrum."

G. Sreekumar wrote on Mon, 27 Dec 2010 22:05

Re: Einstein Nobel futures contract

More specifically, Einstein got the Nobel for the Photoelectric effect. Moreover, it is not uncommon for physicists also to have to wait long for a Nobel? The most notable example being that of Subrahmanyam Chandreasekhar who got the Nobel in 1983 for work done in the 1930s! Apparently, he was irked by the fact that the citation completely ignored all his later work.

Rabi wrote on Wed, 29 Dec 2010 17:18

Re: Einstein Nobel futures contract

Sir, This one gives a picture on prevalence of future contract without formal naming. conclusions- the lady was risk loving one her analysis were perfect the team so gave the suggestions were having faith on einst. she had more detailed knowledge about emotional and personal life of einst.

Besides the technical aspect on risk evaluation the legal part is also interesting.

ketan wrote on Thu, 30 Dec 2010 17:30

Re: Einstein Nobel futures contract

Ok, pl lets put basic fundas here, since everybody is throwing in the hat!!

"Futures" contracts are exchange traded & also Standardized. They are mark to market (cash settled) EVERY day.

Forward Contracts are non-standard and available over the counter (OTC). They are not M2M.

There are "strip" contracts, say, where 10 forward years, 5 years from now (2015) are "bunched" together. So in 2015, single year 10 contracts become available for trading. But as of today, these 10 exist as one single strip.

So, as the case is described, it looks like a "strip forward contract" and not a "futures contract".

There are also available other Cx - options, optures (option on futures), futions (futures on an option contract), etc - many exotic types.

Since this is supposedly a top-class blog, better to get more in perspective ! ;-D

hope it helps...

reg ketan

reg ketan

Allen Esterson wrote on Mon, 21 Mar 2011 15:49

Re: Einstein Nobel futures contract

There is a great deal of misinformation here. There was no "futures contract", merely a divorce settlement. Mileva Maric was not a "scientist": she twice failed the Zurich Polytechnic diploma examinations for teaching physics and mathematics in secondary schools, and there is no authenticated original work in physics by her. There is no evidence that she was a sounding-board for the 1905 relativity paper: Michele Besso played that role. As to the story that Maric consulted other scientists and worked out the odds, that seems to be a figment of Isaacson's imaginination. It is not in any of the Einstein biographies, including his own!

jackie wrote on Sun, 28 Jul 2013 13:57

Re: Einstein Nobel futures contract

Alimony and child support. There were two children, one was mentally disabled. She cared for both of them. The wife was a cousin, cousin marriage was common in Europe at that time.