How does it work for quants?

B

Bond James

There's a question for which I didn't got a satisfactory (i.e. honest) answer on Wilmott. How do you reconcile the publishing of some phenomena with the fact that you're going to profit from it?

Except for clueless articles (the majority actually), the stuff they say in those articles is:
- 1) advertizing of useless, dummy decoys to keep the stupid busy
- 2) plain manipulation
 
even if posted/published, you need a high enough IQ to understand it.... and its only other quants who would be in a meaningful setting to take advantage of it. Everyone has their own 'holy grail' if surviving in the business long enough.
 
I would guess the only papers that contain something REALLY valuable and SPECIFIC would be PhD Dissertations (even than... its unlikely). Once the author is actually practising and not dabbling in academia, it isn't in their interest to disclose working strategies/methods in detail because a lot more $$ can be made by running the strategy themselves before others arbitrage it away. The reasons papers still get published is for authors to get their name (or their firms name) out there to attract talent or investors. That being said, I still like reading these academic writings.... The key is to treat it as inspiration for your own ideas, not as a cookbook.
 
IAS_LLC said:
I would guess the only papers that contain something REALLY valuable and SPECIFIC would be PhD Dissertations (even than... its unlikely). Once the author is actually practising and not dabbling in academia, it isn't in their interest to disclose working strategies/methods in detail because a lot more $$ can be made by running the strategy themselves before others arbitrage it away. The reasons papers still get published is for authors to get their name (or their firms name) out there to attract talent or investors. That being said, I still like reading these academic writings.... The key is to treat it as inspiration for your own ideas, not as a cookbook.
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Funny you say that. A lot of the best stuff I've read has been PhD dissertations and even a few undergrad theses. I'm definitely considering doing a thesis next year.
 
cjbuckley4 said:
Funny you say that. A lot of the best stuff I've read has been PhD dissertations and even a few undergrad theses. I'm definitely considering doing a thesis next year.
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I don't feel too strongly about undergraduate thesise, myself. Mainly because you usually don't have enough time to perform the research to make it worth while if you have full course load (as you would with a Masters/PhD thesis/dissertation). That being said, it could be a good job interview conversation piece and it also forces a deadline upon you.

I'm not sure how you're university is set up, but my university claims to be entitled to any business that is spawned from university funded research. I'm not sure how that would apply to a trading methodology, as it would be tough to proof anything... But just a heads up...universities hands are just about as sticky as the govt when it comes to getting "their" share
 
IAS_LLC said:
I don't feel too strongly about undergraduate thesise, myself. Mainly because you usually don't have enough time to perform the research to make it worth while if you have full course load (as you would with a Masters/PhD thesis/dissertation). That being said, it could be a good job interview conversation piece and it also forces a deadline upon you.

I'm not sure how you're university is set up, but my university claims to be entitled to any business that is spawned from university funded research. I'm not sure how that would apply to a trading methodology, as it would be tough to proof anything... But just a heads up...universities hands are just about as sticky as the govt when it comes to getting "their" share
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I approached a University a few years back to help implement algo system on a remote server, the paperwork really discourages you to collaborate, they would end up owning a significant share IP rights to the concept/model.
 
I was wondering weather options traders on this forum have the math background to read PhD / Masters stuff. Seems that at least several do (IAS_LLC, cjbuckley4, Spectre2007), very cool.

I published a paper too (won't name it here as I don't wanna disclose my identity). It's an option pricing model slightly different from Black-Scholes for a particular situation. I noticed the situation and hoped it might get me some competitive advantage (make money) so I applied the basic theory (stochastic processes, martingale pricing) and came up with the pricing formula. While there are slight differences, they are too small to make anything out of them. Like the prices are very close for small interest rate / dividend yield but start to diverge as the rates increase. Also the delta is different so the replication strategy leads to portfolios of different values, interestingly they are approximately identical on the average (prices are close) but differ in distribution: Black-Scholes has higher probability of large losses than mine.

Anyways, after I was reasonably sure one (i.e. I) can't make money with it, I published it :) And I suppose I'm not unique in this way of thinking :P
 
I think a lot of the quants who publish papers are more interested in the research and their career track towards tenure at university. Many of them consult: Peter Carr, Andrew Lo, Robert Jarrow, etc. make a lot of money consulting. Some put their names on hedgefunds (as figureheads) but I think most realize that the actual portfolio management, sourcing of capital, etc. isn't for them.

One of my friends left as an exotics credit trader to become an PhD in finance. Arguably he has a better life than he would have as an executive director/low level MD at a bank. He's tenured; does whatever he wants; consults hedgefunds, governments, and companies on accounting issues; and hobknobs with the elite in the finance and business world.

So it's not that the research isn't commercially valuable as much as their motivation for publishing isn't directly commercial. However, most research in general isn't commercially valuable; even sellside/buyside research that is SPECIFICALLY done for commercial purposes as largely unhelpful.
 
If you're a good quant you don't have this one edge you spent years finding and you have to guard with your life once you find it. If you're a good quant you're good at the process of finding abnormal returns, constantly. Many only last a short time, so you're always looking for more and finding them. If you're one of these types of people, then publishing an interesting idea you've researched isn't necessarily going to put you back much more than the time it took you to publish it, and it demonstrates to potential investors and employers that you're smart and can find an exploitable edge.
 
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