Quants: The Alchemists of Wall Street

[stockholmer]

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.


-------------------------------------------------------------------

Quant trading: How mathematicians rule the markets

http://www.bbc.co.uk/news/business-14631547

Trading floors were once the preserve of adrenalin-fuelled dealers aggressively executing the orders of brokers who relied on research, experience and gut instinct to decide where best to invest. Long ago computers made dealers redundant, yet brokers and their ilk have remained the masters of the investment universe, free to buy and sell wherever they see fit. But the last bastion of the old order is now under threat.

Investment decisions are no longer being made by financiers, but increasingly by PhD mathematicians and the immensely complex computer programs they devise. Fundamental research and intuition are being usurped by algorithmic formulae. Quant trading is taking over the world's financial capitals.

New paradigm

Mathematicians have long played a vital role in risk management at financial institutions, but their skill set is increasingly being used to make money, not just to stop losing it. Firms are now employing gifted academic statisticians to track patterns or trends in trading behaviour and create formulae to predict future market movements. These formulae are then fed into powerful computers that buy and sell automatically according to triggers generated by the algorithms.

These so-called quantitative trading programs underpin all quickfire trades - known as high-frequency trading (HFT) - in which stocks can be held for just a matter of seconds. They are also used in more traditional trading, where the holding period can be days, weeks or months. Some are fully automated, but most require human oversight to ensure nothing goes too drastically wrong. Scott Patterson, a Wall Street Journal reporter and author of The Quants, uses the analogy of a plane on autopilot, which can fly itself but where a specially-trained pilot can step in at any moment.


snip

[benld74]

1. Ever wonder what the world would be like if these Wizards used their knowledge,,,

for the GOOD of society, instead of doing this SHIT?!?!

They are not making anything
They are not helping anybody
They are finding methods to BEAT an already full of holes system.

I despise what they are doing

[Ruby the Liberal]

2. Oddly, but not surprising,

Wall Street is chock full of MIT-type statisticians who went to college with engineering pursuits in mind but ended up swayed by the cash.

[DCKit]

3. Do all trades still pass through Goldman Sachs?

They've been making money by front-trading everyone's transaction for far too long.

[Warpy]

4. THIS is why we so desperately need that transaction tax!

Those thousand trades a second would be rendered unprofitable overnight as the fraction of a cent gained per share would be wiped out by the tax on trading it that rapidly.

It's either that or simply give up on the stock market unless one is an investment bank.

[Ruby the Liberal]

5. Oh hell yes.

Been screeching like a hoot owl over this for years. Cut them off and fix the deficit in one fell swoop? *poof*

[jtuck004]

6. Except these "alchemists" turned gold into lead. Methinks even Merlin would be displeased. n/t

[Celebration]

7. loved this

great piece of documentary work. recommended!