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Quants: The Alchemists of Wall Street

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By Barry Ritholtz - April 29th, 2010, 4:54PM

Quants are the math wizards and computer programmers in the engine room of our global financial system who designed the financial products that almost crashed Wall st. The credit crunch has shown how the global financial system has become increasingly dependent on mathematical models trying to quantify human (economic) behaviour. Now the quants are at the heart of yet another technological revolution in finance: trading at the speed of light.

What are the risks of treating the economy and its markets as a complex machine? Will we be able to keep control of this model-based financial system, or have we created a monster?

A story about greed, fear and randomness from the insides of Wall Street.

Hat tip Paul

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Category: Video.

Comments

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6 Responses to “Quants: The Alchemists of Wall Street”

  1. Thursday Readings | The Big Picture Says:
    April 29th, 2010 at 5:06 pm

    [...] « Deepwater Horizon Quants: The Alchemists of Wall Street [...]

  2. Fredex Says:
    April 29th, 2010 at 5:48 pm

    Hubris.

    Financial models are garbage in, money out until they aren’t.

  3. VangelV Says:
    April 29th, 2010 at 10:45 pm

    Quants are a joke. Their arrogance causes them to believe that they know far more than they actually do. Eventually it catches up to them and they get wiped out by an event that they never thought likely.

  4. mbelardes Says:
    May 1st, 2010 at 3:04 pm

    @26:45 he discusses how Wall Street will tell a quant to redo the numbers in the model to get a better risk value.

    And there lies the fraud. A single shifted variable or value to change all the data, change the risk, change the way an investors (or rating agency) sees a product, and therefore change their opinion to buy or pass.

  5. vividephemera Says:
    May 2nd, 2010 at 12:37 am

    Interesting that there is no outright mention of “market makers” in the video, and how they used the quants to do so. I don’t feel the video blames the quants exclusively–rather it focuses on their part in the collapse. Their collaboration with the vast sums of capital at the disposal of the market makers is where it starts to get interesting. Bit at 26:45 noted above starts to go in that direction.

    Man–I love this blog. It’s tops. Long time follower, newbie commenter.

  6. The Big Short : Interactive Investor Blog Says:
    May 5th, 2010 at 7:12 am

    [...] Wilmot says people should be rewarded for taking risks, but not with other people’s money [...]

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