The Quants

Last updated
The Quants
How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It
The Quants.jpg
Hardcover edition
Author Scott Patterson
CountryUnited States
LanguageEnglish
SubjectFinance, trading, investing
GenreNon-fiction
Publisher Crown Business
Publication date
February 2, 2010
Media typePrint, e-book
Pages352 pp.
ISBN 0-307-45337-5
Followed byDark Pools 

The Quants is the debut New York Times best selling book by Wall Street journalist Scott Patterson. [1] [2] It was released on February 2, 2010 by Crown Business. The book describes the world of quantitative analysis and the various hedge funds that use the technique. [3] [4] Two years later, Patterson published a follow-up book, Dark Pools: High Speed Traders, AI Bandits and the Threat to the Global Financial System, an investigative journey into the history of high-frequency trading and the spread of artificial intelligence in today’s markets. [5] [6]

Contents

Background

Patterson began writing The Quants in 2008. He was first exposed to the quantitative analysis investment strategies while covering the financial industry for the Wall Street Journal . [7] As he became more acquainted with the players involved, he found that many of the most successful quants knew each other and carried similar eccentricities. [7] Realizing this was a world that the average investor knew little of, Patterson wrote the book to shed light on the strategies, players, and related risks of such trading strategies. [7]

Synopsis

The introduction to The Quants describes the real-life, annual, high-stakes poker match between Wall Street's hedge fund managers, comparing their trading styles to their poker strategies. [8] It focuses on, among other things, the 2007 subprime mortgage crisis and how it helped trigger a sudden and massive unwinding of complex, highly leveraged quantitative strategies. The book also delves into critical short-comings of many quantitative strategies, such as their tendency to lead to crowded trades and their underestimation of the likelihood of chaotic, volatile moves in the markets. [9]

The book also delves into the background of the various vanguards of quantitative analysis. It tells the history of Beat the Market & Beat the Dealer author Ed Thorp; Pete Muller from Morgan Stanley's hedge fund; Ken Griffin from Chicago's Citadel LLC; James Simons from Renaissance Technologies; Clifford S. Asness and Aaron Brown from AQR Capital Management; and Boaz Weinstein from Deutsche Bank. [10] [11]

Reception

The Quants debuted on The New York Times bestseller list. [1] Jon Stewart featured Patterson as a guest on The Daily Show and described the book as "unbelievable." [4] Patterson was a guest on NPR, and Ed Thorp, one of the book's main characters, joined Patterson for a live interview. [10] The New York Times profiled the book, calling it "fascinating and deeply disturbing." [2] The Quants received additional profiles in Bloomberg, BusinessWeek, Scientific American, Financial Times, and Minyanville. [2] [3] [4] [7] [8] [9] [10] [11]

See also

Related Research Articles

Financial engineering is a multidisciplinary field involving financial theory, methods of engineering, tools of mathematics and the practice of programming. It has also been defined as the application of technical methods, especially from mathematical finance and computational finance, in the practice of finance.

Renaissance Technologies LLC, also known as RenTech or RenTec, is an American hedge fund based in East Setauket, New York, on Long Island, which specializes in systematic trading using quantitative models derived from mathematical and statistical analysis. Their signature Medallion fund is famed for the best record in investing history. Renaissance was founded in 1982 by James Simons, a mathematician who formerly worked as a code breaker during the Cold War.

In finance, statistical arbitrage is a class of short-term financial trading strategies that employ mean reversion models involving broadly diversified portfolios of securities held for short periods of time. These strategies are supported by substantial mathematical, computational, and trading platforms.

Edward Oakley Thorp is an American mathematics professor, author, hedge fund manager, and blackjack researcher. He pioneered the modern applications of probability theory, including the harnessing of very small correlations for reliable financial gain.

<span class="mw-page-title-main">Computational finance</span>

Computational finance is a branch of applied computer science that deals with problems of practical interest in finance. Some slightly different definitions are the study of data and algorithms currently used in finance and the mathematics of computer programs that realize financial models or systems.

<span class="mw-page-title-main">Citadel LLC</span> American hedge fund and financial services provider

Citadel LLC is an American multinational hedge fund and financial services company. Founded in 1990 by Ken Griffin, it has more than $58 billion in assets under management as of January 2024. The company has over 2,800 employees, with corporate headquarters in Miami, Florida, and offices throughout North America, Asia, and Europe. Founder, CEO and Co-CIO Griffin owns approximately 85% of the firm. As of December 2022, Citadel is of the most profitable hedge funds in the world, posting $74 billion in net gains since its inception in 1990, making it the most successful hedge fund in history, according to CNBC.

Convertible Hedge Associates (CHA) was an early alternative investment management company founded by Edward O. Thorp and a partner, Jay Regan, in November 1969. Based in Long Beach, California, CHA was said by Thorp to have been the first market-neutral hedge fund. In 1974 it was renamed as Princeton/Newport Partners.

Neil A. Chriss is a mathematician, academic, hedge fund manager, philanthropist and a founding board member of the charity organization "Math for America" which seeks to improve math education in the United States. Chriss also serves on the board of trustees of the Institute for Advanced Study.

Aaron C. Brown is an American finance practitioner, well known as an author on risk management and gambling-related issues. He also speaks frequently at professional and academic conferences. He was Chief Risk Manager at AQR Capital Management. He was one of the original developers of value at risk and one of its strongest proponents.

A quantitative fund is an investment fund that uses quantitative investment management instead of fundamental human analysis.

<span class="mw-page-title-main">AQR Capital</span> Global investment management firm

AQR Capital Management is a global investment management firm based in Greenwich, Connecticut, United States. The firm, which was founded in 1998 by Cliff Asness, David Kabiller, John Liew, and Robert Krail, offers a variety of quantitatively driven alternative and traditional investment vehicles to both institutional clients and financial advisors. The firm is primarily owned by its founders and principals. AQR has additional offices in Boston, Chicago, Los Angeles, Bangalore, Hong Kong, London, Sydney, and Tokyo.

Scott Patterson is an American financial journalist and bestselling author. He is a staff reporter at The Wall Street Journal and author of Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System and The New York Times bestselling bookThe Quants.

Boaz Weinstein is an American hedge fund manager and founder of Saba Capital Management. He rose to prominence at Deutsche Bank in the early and mid 2000s with his credit default swap and capital structure arbitrage trading strategies. He then formed a proprietary trading group within Deutsche Bank. After leaving the bank in 2009, Weinstein started Saba Capital Management as a separate hedge fund. As of September 2022, Saba manages $4.8 billion in assets.

Clifford Scott Asness is an American hedge fund manager and the co-founder of AQR Capital Management. According to an April 2020 Forbes profile, Asness' estimated net worth was $2.6 billion.

Quantitative analysis is the use of mathematical and statistical methods in finance and investment management. Those working in the field are quantitative analysts (quants). Quants tend to specialize in specific areas which may include derivative structuring or pricing, risk management, investment management and other related finance occupations. The occupation is similar to those in industrial mathematics in other industries. The process usually consists of searching vast databases for patterns, such as correlations among liquid assets or price-movement patterns.

<i>More Money Than God</i> 2010 financial book by Sebastian Mallaby

More Money Than God: Hedge Funds and the Making of a New Elite (2010) is a financial book by Sebastian Mallaby published by Penguin Press. Mallaby's work has been published in the Financial Times, The Washington Post, The New York Times, The Wall Street Journal, and the Atlantic Monthly as columnist, editor and editorial board member. He is a senior fellow for international economics at the Council on Foreign Relations (CFR). The book is a history of the hedge fund industry in the United States looking at the people, institutions, investment tools and concepts of hedge funds. It claims to be the "first authoritative history of the hedge fund industry." It is written for a general audience and originally published by Penguin Press. It was nominated for the 2010 Financial Times and Goldman Sachs Business Book of the Year Award and was one of The Wall Street Journal's 10-Best Books of 2010. The Journal said it was "The fullest account we have so far of a too-little-understood business that changed the shape of finance and no doubt will continue to do so."

Todd Harrison is the founder and former CEO of the Emmy Award-winning internet media company Minyanville.

<span class="mw-page-title-main">Cantab Capital Partners</span> Hedge fund based in Cambridge, England

Cantab Capital Partners is a hedge fund based in Cambridge, England, co-founded by Dr. Ewan Kirk and Erich Schlaikjer. Cantab operates quantitative funds using computer models to drive investment decisions. As of Feb 2015 Cantab had $4.5 billion in assets under management, after launching with $30 million in 2006. The firm takes its name from Cantabrigia, the medieval Latin name for Cambridge. It is regulated in the UK by the Financial Conduct Authority. Cantab Capital Partners was acquired by GAM in 2016 and is since part of GAM Systematic.

<span class="mw-page-title-main">Two Sigma</span> Investment firm

Two Sigma Investments, LP is a New York City-based hedge fund that uses a variety of technological methods, including artificial intelligence, machine learning, and distributed computing, for its trading strategies. The firm is run by John Overdeck and David Siegel.

<span class="mw-page-title-main">WorldQuant</span> American international hedge fund and quantitative investment management firm

WorldQuant, LLC is an international hedge fund and quantitative investment management firm headquartered in Old Greenwich, Connecticut. Founded in 2007, the firm is currently managing approximately $9 billion in assets under management for Millennium Management via quantitative trading and other methods of quantitative investing. WorldQuant operated the WorldQuant Challenge, where participants compete in the field of quantitative finance, and WorldQuant Accelerator, an independent portfolio manager platform. In 2015 the WorldQuant Foundation launched WorldQuant University.

References

  1. 1 2 "Hardcover Nonfiction Books - Best Sellers - March 7, 2010 - The New York Times". The New York Times. ISSN   0362-4331 . Retrieved 2020-07-03.
  2. 1 2 3 Hurt III, Harry (February 20, 2010). "In Practice, Stock Formulas Weren't Perfect". New York Times.
  3. 1 2 Pressley, James (February 18, 2010). "How Quants Made a Killing—and Made a Mess". BusinessWeek. Archived from the original on April 24, 2010.
  4. 1 2 3 Stewart, Jon (March 4, 2010). "Scott Patterson". The Daily Show.
  5. ↑ Cendrowski, Scott (June 22, 2012). "Reasons to fear Wall Street's high-tech traders". CNN Money. Archived from the original on June 25, 2012.
  6. ↑ "High Speed Threats to Global Financial Systems". CNBC.
  7. 1 2 3 4 Collins, Greg (April 13, 2010). "The Quants: Q&A With Scott Patterson". Minyanville.
  8. 1 2 Patterson, Scott (September 22, 2011). "How Math Whizzes Helped Sink the Economy]". Scientific American.
  9. 1 2 Sender, Henny (February 11, 2010). "Wall St maths geniuses whose models did not add up". Financial Times.
  10. 1 2 3 "'The Quants': It Pays To Know Your Wall Street Math". NPR. February 1, 2010.
  11. 1 2 Pressley, James (February 10, 2010). "Citadel's Griffin Skirts Disaster, Taleb Fumes: Books (Update1)". Bloomberg L.P.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.