Questions for ET QUANTS

cuants do "maths," not "math." everyone knows that.

note the arrogace. truly it is "the revenge of the nerds." everyone watch genius fail, again (and again). Don't worry, the everyday guy ultimately pays for the flights of Daedalus.

busted!

 

this could be post of the year.

 

A little off topic, like most of the posts in this thread, but you've been harping on about this. Do provide at least one such link as you mention above (of course with yourself or one of your aliases not being the author of the given post)... Just for the curious...

ET is a such a reliable source of info, you can bank on it.

 

quant being a word "invented" by wall street, popularized by top quant emanuel derman---how can there be quants off the street, in the true meaning of the word?



I am pleased to be joined today by Dr. Emanuel Derman. He is one of the first high-energy particle physicists to apply his knowledge to the financial realm. He specializes in quantitative trading which is the designing of mathematical models for the purpose of making buy/sell decisions. The scientists who build these models are known as “Quants” in popular parlance. Dr. Derman: is the best-known Quant on Wall Street and is credited with co-authoring some of today’s most widely used and influential financial models. He spent 17 years on the Street and was managing director/head of The Quantitative Strategies Group at Goldman, Sachs, and Co. Recently, he authored the popular book, My Life As A Quant, which documents his growth from academia to the rough and tumble world of Wall Street. I am looking forward to this interview, let’s get started!

Dave: Thank you for joining me today, Dr. Derman.

Dr. Derman: I'm very pleased to be here.

Dave: Let’s start by talking a little about your background. What was the impetus that moved you, a physicist, from academia to Wall Street?

Dr. Derman: To tell the truth, it was entirely unplanned. I started out as a very ambitious theoretical physics student in the late 1960s, when I came to graduate school at Columbia University in New York, from Cape Town, South Africa; I wanted to devote my life to great things, like Einstein or Schrodinger, Gell-Mann or Feynman, all famous physicists who uncovered deep and transcendental truths about the universe. But physics is very tough, a very meritocratic field. I got my Ph.D in particle physics, published a fair number of papers, worked as a post-doctoral researcher and then an assistant professor in good schools for a number of years, and slowly found out I wasn't as smart or creative or lucky as I had hoped. Plus, by the early 1970s there was a severe shortage of academic jobs.

My wife was in academic life too, and we kept moving around the world trying to find positions in the same cities, but only succeeding half the time. Finally, it grew too much for me. In 1980 I was a professor in Boulder Colorado with a wife and two-year-old son in New York, and after one year I decided I'd had enough. I quit Boulder and particle physics and took a job at AT&T Bell Labs in Murray Hill NJ to be with my family in New York.

I spent five years there working in a big corporation and didn't like it too much after the freedom of academic life, and then I moved to Wall Street and Goldman Sachs, which was beginning to hire physicists to work on financial problems.

Dave: What exactly is “particle physics”?

Dr. Derman: Particle physics is the study of the smallest subatomic particles in the universe, and the attempt to discover the laws and concepts that describe and govern them. Particle physicists tend to think it's the most fundamental area you can study, though other kinds of physicists or scientists might be willing to argue about that.

Dave: The transition from academia to Wall Street must have been difficult. Can you share several of your first experiences?

Dr. Derman: People are impatient on Wall Street and don't respect age, which may be good. I was close to 40 when I moved to work there, and the first guy I worked for on Wall Street asked me to enhance a Black-Scholes-style bond options model he had built. I started out slowly and carefully, tackling the problem the way I used to in physics, with care. After about a week, he got impatient. “You know,” he said sharply, “In this job you really need to know only four things: addition, subtraction, multiplication and division — and most of the time you can get by without division!”

Dave: I understand when you first started being a Quant had negative overtones. Did you experience any ….

Dr. Derman: Quite a few that I mention in my book. In 1985 when I started I quickly noticed the embarrassment involved in being “quantitative”. Sometimes, talking in a crowded elevator to another “quant,” you might start to say something about the duration or convexity – the derivatives – of a financial instrument. If the person you were talking to had been at the firm a little longer than you, he – it was usually a he – would cringe a little, and rapidly try to change the subject. “See the Yankees game last night?” he might ask, or “Futures dropped more than a handle today!” he might exclaim, the sort of things a real bond trader might say.

Soon, you began to realize, there was something a little shameful about two consenting adults talking math in a crowded elevator; there was something awful about being “outed” as a quant in public. People in the elevator just looked away.

In those days they paid up for quantitative skills, but you were still somewhat reluctantly accepted. Once, a friend and I were talking on the trading floor when one of the convertible traders walked between us, momentarily. Suddenly he grimaced and winced; he clutched his temples with both hands as though a sharp pain had pierced him and exclaimed, “Aaarrgghhhh! The force field! It’s too intense! Let me get out of the way!”

All of this was, of course, simultaneously patronizing and nevertheless a little complimentary, and therefore quite irritating.

Dave: What occurred that moved quantitative finance from the fringe to the hottest topic on the Street?

Dr. Derman: Three things. First, the arms race in securities’ design and investment strategies, the increasing sophistication that has led to quantitative trading strategies being an attractive way to try to make money in more subtle ways. Second, the rise of hedge funds like LTCM – and their capacity to wreak destruction when they rely too heavily on their models – has given quantitative finance a paradoxically greater respect. And third, there really have been advances in quantitative finance that allow investors to slice and dice the risks they want to take more accurately.

Dave: What exactly does a Quant do?

Dr. Derman: Use a combination of (i) financial and business understanding, combined with (ii) mathematical models of securities and markets that they (iii) implement as software on computers to value securities and search for rich or cheap ones in the marketplace. Especially, quants work on complex securities like options or convertible bonds whose value is subtle and less apparent, and can sometimes be extracted only by careful systematic formula-driven trading.

Dave: Are you able to explain how physics and finance mesh?

Dr. Derman: Yes, briefly; they both share the same language. Most of the more or less successful attempts to model securities and the way their value changes as markets move has been inspired by physics, and uses its techniques – algebra, calculus, Monte Carlo simulation, the idea of equilibrium, the idea that there are laws that describe these things. The two fields are deceptively similar-looking.

Dave: I really like your statement that physics is playing against God and finance is playing against God’s creatures. It’s brilliant ! I want to delve a little deeper into the meaning of this statement. Are you saying that pure physics represents a perfect world whereas finance reflects the uncertainty and foibles of the far from perfect mind of man?

Dr. Derman: That’s very well put, yes.

Dave: It seems difficult to mesh an imperfect discipline like finance with physics. Please explain the interrelation.

Dr. Derman:; Well, my book is partially about my belief that they don’t mesh as well as people in finance think. As a physicist, when you propose a model of nature, you’re pretending you can guess the structure God created. It sounds eminently plausible. Every physicist is a sort of great pretender; he believes he has a small chance of guessing right, or else he wouldn’t be in the field. But as a quant, when you propose a new model of value, you’re pretending you can guess the structure of another person’s mind. When you try out a new yield curve model, you’re implicitly saying something like “Let’s pretend people in markets care only about the level of future short-term interest rates, and that they expect them to be distributed normally.” As you say that to yourself, if you’re honest, your heart sinks. You’re just a poor pretender and you know immediately there is no chance at all that you are truly right..

Dave: What do you consider to be the primary differences between traders and quants?

read the rest here: http://www.tradingmarkets.com/.site/stocks/commentary/satinterview/02082005-42320.cfm

 

OK. Now you tell me where the genius is in what I see on the tape every day. Hundreds of MO cars flung at the LO computers to force BOs. Hundreds more exploiting BO's (in the unlikely event that the previous ploy worked). Playing BOs the retail trade created. Chasing false BOs. Selling double tops and buying double bottoms. If they have any better strategems I don't see them throwing any size at it. All for a tick or two. I trade smarter than they do with my Mark I supercomputer, just not in size. And I don't get the hideous fast-moving-market slippage they do.

 

Work a bit harder, ya'll find the ET posts.

PS: nono alway works by himself. doesn't have time for aliases.

 

Here is something new to learn: look up the definition of TOO and use it in place of to at the appropriate times. Mullet.

 

Hypo you forgot to mention perhaps the most important non epistemological regimes, non-linear specious regression analysis and its corollary orthogonal jokari migration apertures.

 

Mullet refers to your haircut. I can't help you with that.

As to the rest, you friggin idiots represent the biggest net waste of time and resource that I have ever witnessed.

The idea that any one of you would represent yourselves as educated is laughable. No educated person would waste our time here like you do with your aliases, your shitty worthless posts and your pretense.

Assholes. You dare to protest on THIS issue. Lets see some of the benefit of that excellent education instead of your worthless self indulgent word salad. As to you Chicken shit, just fuck off, you have offered nothing to anyone except malice. Take your crappy fucking attitude and walk it over to MoneyTec. Or have you been thrown out of there already? Quants here? I may bust a fucking gut laughing. YOU?

I am sure you folks have been told this many, many times, yet you insist on showing up here with this weak crap.

You people aren't qualified to hold an educated man's jockstrap.

What I love about this is that you idiots seem content to walk on over here time after time with a sign on your chests that says "kick my ass please" and "I am such a complete friggin idiot that no other site will tolerate me, but if you would kick my ass I would appreciate it, thank you" It must be an Australian tradition.

I think you should go back to selling your wives at the local bar.

Steve

 

Don't forget Alexander's theorem as revealed by Jack.