Quants --Alive and Kicking

Quote from NY0BScalper:

LOL, watch them pay option premiums out the asshole betting on 2008 events happening again... but instead it will be like 2003... 2004... 2005... then when they get sick of paying the premiums (or their investors do), maybe 3 or maybe 15 years down the line... BOOM 2008 does come again...

lol....

just gotta trade it...
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I could not agree more
:p
 
I don't remember where I read this, but this sums it up for me perfectly:

"In the short run, we will learn something. I the intermediate term, we will learn quite a bit. In the long run, we will learn nothing" - ?

The problem is that trading is mostly ruled by 20somethings, and by the time the generation that went through this is too old to impose the lessons on their peers, the knowledge may as well be stored in the Library of Alexandria.

http://en.wikipedia.org/wiki/Library_of_Alexandria
 
Quote from pepper_john:

Most of these models are pricing models, not predictive models.
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Every pricing model in existence makes specific market assumptions, therefore every pricing model in existence is by definition also a predictive model.
 
Quote from science_trader:

You would have wished the same to Boyle 300 years ago about gases.
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Nothwithstanding some of the hot air that gets passed around in these here parts, I suspect that the underlying physics and chemistry of gases may not be quite as directly applicable to the markets as some would like to believe. Unlike you, I'm not a man of science, so I can't speak with any authority on the matter. However, I suspect that human behavior is a tad more indeterminate and perhaps better analyzed with far more blunt instruments. But if you have made your fortune in the markets using your knowledge of physics, then who am I to question the emperor's clothing?
 
Quote from marketsurfer:

http://www.reuters.com/article/newsOne/idUSTRE4BL02N20081222?pageNumber=1&virtualBrandChannel=0


By Phil Wahba

NEW YORK (Reuters) - Last week, New York University and Carnegie Mellon sent a new class of math whizzes out into a profession that is both blamed for the financial collapse and charged with preventing it happening again.

Many of these so-called quantitative analysts, or "quants," graduating from elite financial engineering courses will end up writing computer programs that handle an ever greater share of market trading.

Because some of their mathematical models failed to take into account factors that later turned out to be crucial, quants have been blamed for compounding risk and exacerbating the crash in financial markets.

But far from going into decline, those with financial engineering degrees are still in demand as hedge funds and banks seek ways to measure previously unforeseen risks and factor them into their models.

The profession's reputation took a beating in August 2007, when some quant funds -- which try to beat the market by crunching vast amounts of data at lightning speed -- lost a third of their value in a matter of days.

Many blamed the math commandos for failing to factor in extreme events, in this case unprecedented numbers of home mortgage foreclosures.

Critics and practitioners alike agree they need to improve their modeling, and that begins at the elite financial engineering programs, which have come to be known as "quant farms."

Both New York University and Carnegie Mellon University in Pittsburgh, which between them minted about 100 new quants this month, have tweaked their curricula, lest their graduates miss another brewing disaster.

Meanwhile, at Columbia University, the masters of financial engineering program has tried to give its students a wider view of the market outside mathematical models, said program director Emanuel Derman.

"You have to understand you are dealing with people and markets, and they don't respond the way physical systems do," said Derman, a former managing director at Goldman Sachs.

PLUS CA CHANGE

As the mortgage crisis gathered steam last year and financial markets became volatile, quant funds, which make up about 7 percent of the hedge fund universe, were caught flat-footed.

To raise cash, they started selling stocks, which created unusual moves in stock prices, throwing other quant models off. Finally, the selling snowballed into a full market panic.

"Before you know it, you have a chain reaction and the whole market dives on the basis of what amounts to a mathematical prediction," said Peter Morici an economics professor at the University of Maryland.

"You create a mathematical herd. That's why so often these schemes based on math models end in tears." Continued...
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these people are really smart. no doom and gloom bo hoo hoo recession there. The surge in quants is more proof nothign hanged economically between June 2007 and now.
 
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