Floor to Ceiling
Numerical instability has caused big problems in the world of finance more than once. All areas of trading have been affected by calculations that were being performed 'approximately right'.
Every exchanage that wants to be taken seriously must have an index. At least that is the common perception. Thinking like the global player it wanted to be, the Vancouver Stock Exchange (VSE) introduced an index of all the stocks it traded.
And so the Vancouver Stock Exchange Index was launched in January 1982 with the initial index level set to 1,000 points.
Now this was the 1980s and things were looking pretty good for equities globally... although back then people paid more attention to established markets. For comparison, the Dow Jones Industrial Average (DJIA) was at 829 in January 1980 and finished the decade at 2740. A total return of 230% or an average return of 13% per annum.
However, north of the border, in Canada, the newly born VSE Index wasn't going up. It wasn't even going sideways. It was going down at an alarming rate. After the first year, it was down 27.5%, at 725 points. After another 11 months it made a low of almost 520. That's a 48% drop. In the meantime the DJIA rose 65% over the same period. What was happening? A number of the stocks on the VSE were hitting new highs, so why was the VSE Index making such dramatic new lows?
A few weeks of investigation in late 1983 turned up code like this: