Math & Physics versus Wall Street

Interesting article in the Science section of today’s NYTimes: They Tried to Outsmart Wall Street.

“Quants occupy a revealing niche in modern capitalism. They make a lot of money but not as much as the traders who tease them and treat them like geeks. Until recently they rarely made partner at places like Goldman Sachs. In some quarters they get blamed for the current breakdown — “All I can say is, beware of geeks bearing formulas,” Warren Buffett said on “The Charlie Rose Show” last fall. Even the quants tend to agree that what they do is not quite science…

Asked to compare her work to physics, one quant, who requested anonymity because her company had not given her permission to talk to reporters, termed the market “a wild beast” that cannot be controlled, and then added: “It’s not like building a bridge. If you’re right more than half the time you’re winning the game.” There are a thousand physicists on Wall Street, she estimated, and many, she said, talk nostalgically about science. “They sold their souls to the devil,” she said, adding, “I haven’t met many quants who said they were in finance because they were in love with finance.”

Fascinating stuff.

I can recommend the first 3 books, and have the next 2 on my list to read:

  1. The Black Swan: The Impact of the Highly Improbable
    by Nassim Nicholas Taleb (Random House, 2007)
  2. When Genius Failed: The Rise and Fall of Long-Term Capital Management
    by Roger Lowenstein (Random House, 2000)
  3. Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives
    by Satyajit Das (FT Press, 2006)
  4. My Life as a Quant: Reflections on Physics and Finance
    by Emanuel Derman (John Wiley & Sons, 2004)
  5. Physicists on Wall Street and Other Essays on Science and Society (Title Essay)
    by Jeremy Bernstein (Springer, 2008)


They Tried to Outsmart Wall Street
NYT, March 10, 2009

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