More...
 

How Complex Math Formulas And "Quant Funds" Failed Wall Street

Washington Post   |  Frank Ahrens   |   August 21, 2007 01:07 AM

Breaking Home News
stumbleupon :How Complex Math Formulas And "Quant Funds" Failed Wall Street   digg: How Complex Math Formulas And "Quant Funds" Failed Wall Street   reddit: How Complex Math Formulas And "Quant Funds" Failed Wall Street   del.icio.us: How Complex Math Formulas And "Quant Funds" Failed Wall Street

Instead of veteran, market-savvy traders waving fistfuls of sell slips, the elite quant funds employ Nobel nerds with math PhDs, often divorced from the real world. It's not for nothing that they are called "black-box" funds -- opaque to outsiders, the boxes contain investment magic understood by only the wizards who conjured it up.

But the 387-point drop in the Dow Jones industrial average Aug. 9 and the continuing turmoil in the markets, in part attributed to massive sell-offs by the quant funds, have tarnished some of the quants' glimmering intellectual credentials and shown that, when push comes to shove, they can rush toward the exits as fast as a novice investor.

Comments for this post are now closed

 
Comments
12
Pending Comments
0
iPhone App Promo

Want to reply to a comment? Hint: Click "Reply" at the bottom of the comment; after being approved your comment will appear directly underneath the comment you replied to

View Comments:
- Sumocat I'm a Fan of Sumocat permalink

The problem with the math is that it's a history problem. Comic books, dot-coms, mortgage lending. What do they have in common? Their markets bubbled following a vast influx of speculators trying to make a quick buck on a fast turnaround, and subsequently burst following a slowdown that triggered a drastic pullout by those speculators. Go back even further and you'll see it again and again. Math is great but it can't stop the cycle of history.

    Favorite    Flag as abusive Posted 08:51 AM on 08/21/2007
- dryfactoidobotanoid I'm a Fan of dryfactoidobotanoid permalink

http://www.youtube.com/watch?v=9SnfxItXe7s

McLuhan - The Medium is the Massage 2.1

    Favorite    Flag as abusive Posted 02:58 AM on 08/21/2007
- Mort I'm a Fan of Mort permalink
photo

Not Wall Street geniuses. Definitely not Wall Street Geniuses. Definitely not. I have to go home now. I Love Lucy is on at 5.

    Favorite    Flag as abusive Posted 02:24 AM on 08/21/2007
- RabidRightRebel I'm a Fan of RabidRightRebel permalink

Clearly you have never worked on Wall Street. It does not matter what direction the markets move just that they move. There is far more money to be made in unstable enviroments and to the extent that these "Quant Funds" have been able to generate volume they have been a success. And their success is defined by the fact that they have providing their managers with huge payouts that would not have been possible in a stable market.

    Favorite    Flag as abusive Posted 02:20 AM on 08/21/2007
- AnnCoultersMoustache I'm a Fan of AnnCoultersMoustache permalink

Clearly you're an idiot

From the NYT

http://www.nytimes.com/2007/08/13/business/13hedge.html?ex=1187841600&en=7e1af1aed9ef564a&ei=5070

"Clifford S. Asness, who has a Ph.D. in finance from the University of Chicago, is the founder of AQR Capital Management, a quantitative hedge fund that, according to investors, has had a 13 percent loss so far this month.

Mr. Asness is also a founder of Goldman Sachs"s troubled Global Alpha fund, which controls about $9 billion. The Alpha fund has suffered an 11 percent reversal this month, giving it a decline for the year that is approaching 30 percent, sparking speculation that Goldman would liquidate the fund. Goldman calls the speculation "categorically untrue."

On a smaller scale, Tykhe Capital, another hedge fund that uses quantitative techniques, was down 19 percent in August. The founders of Tykhe are from D.E. Shaw & Company, the giant hedge fund that manages $35 billion via a broad reliance on quantitative, as well as other, strategies and whose founder, David E. Shaw, who has a Ph.D. from Stanford, originally came from Morgan Stanley. "

    Favorite    Flag as abusive Posted 02:58 AM on 08/21/2007
- RabidRightRebel I'm a Fan of RabidRightRebel permalink

If you think that the Wall Street gives a crap about the average American you are sadly mistaken. From a national perspective it is a disaster, but for Wall Street it has been a bonanza. Do you have any idea about how many millions if not billions Wall Street pundits have made from this? My point which you clearly did not understand is that the header "How complex math formulas and (Quant Funds) failed Wall Street" is wrong. If it said "How complex math formulas and (Quant Funds) failed America" it would be right.

    Favorite    Flag as abusive Posted 03:59 AM on 08/21/2007
- Transit I'm a Fan of Transit permalink
photo

This whole "sub-prime" shock wave hitting the markets was caused by one thing only and that is the the "Mother of all Sins", greed. Many world religions say greed is the stuff the other deadly sins are made of. The greed in the housing market was processed so that the little guy who couldn't afford it was the one who would be stiffed. The realtors, the mortgage firms, the banks and the IRS all made theirs.

So tell me. How do you program greed into a software system?

    Favorite    Flag as abusive Posted 02:15 AM on 08/21/2007
- dryfactoidobotanoid I'm a Fan of dryfactoidobotanoid permalink

"So tell me. How do you program greed into a software system?"

simple.

if (x > y) {
loot("!!!11");
}

    Favorite    Flag as abusive Posted 02:30 AM on 08/21/2007
- AnnCoultersMoustache I'm a Fan of AnnCoultersMoustache permalink

LOL

    Favorite    Flag as abusive Posted 02:56 AM on 08/21/2007
- dryfactoidobotanoid I'm a Fan of dryfactoidobotanoid permalink

don't be fooled. the richest of the rich have computer scientists in their payroll who can program artificial intelligence machines running off of 1000-core processors, churning out monetarist regression formulas.

in short, the rich get richer and everybody else slowly gets poorer.

    Favorite    Flag as abusive Posted 01:50 AM on 08/21/2007
Comments are closed for this entry

You must be logged in to reply to this comment. Log in  or  Connect