by James
25. February 2010 05:19
A ‘quant’ refers to a class of human beings who came to dominate global financial markets during the past decade. These people based their trading decisions on advanced mathematics and made billions of dollars for themselves and some prominent Wall Street firms until the beginning of the market collapse in 2007. These people also enjoyed a good game of poker in-between.
The ‘Quants’ combined their superior mathematical skills with turbocharged computing machines to uncover the ‘secrets’ of trading. Scott Patterson, a staff reporter for The Wall Street Journal who covers financial technology, documents the rise and fall of these geniuses in his new book, “The Quant’s: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It”.
Patterson writes: “The Truth was a universal secret about the way the market worked that could only be discovered through mathematics,” and “The bigger the machine, the more Truth they knew; and the more Truth they knew, the more they could bet,” and with this love for truth came a love for poker.
‘Quants’ celebrated their legacy annually at their Wall Street Poker Night Tournament. Apparently they saw that to be skilled at poker was to be skilled at trading. This brings up an interesting notion whether poker can be formularized. In a blog entry last week we covered that while it is possible to have a realistically simulated computer chess game it is unlikely that this can be done with poker because of the ‘human’ element that is so integral to the game.
The flaw in ‘Quant’ thinking was that the emphasis was on the most likely changes a stock or bond could make but failed to plan for the possibility of big jolts caused by human factors. Much like poker.