The Quants - Scott Patterson

Another charity shop find. It's... not deep. The book covers the history of quant trading back to Ed Thorp and co., plus all the big players who got in before everyone was doing it, and thus made an awful lot of money. So, actually quite good for history, even if it's more than a little breathless and dramatic.

The actual technical side is more than a little thin. Not much distinction is made between quant trading and risk-neutral derivatives pricing, let alone trying to break the former into the high-frequency end and longer-term approaches. Math is hard, perhaps.

Anyway, all that history is just leading up to the quant nightmare of 2007, where it turns out that if everyone loads up the same trades and unwinds, bad things happen. The end of the quants? Didn't really happen. They don't seem to have done nightmarishly badly compared to the rest of the finance industry, so the fevered speculation part is a bit undermined.

However, it does remind us how much of this started in 2007. People seem to think of 2008 and Lehmans, but the seeds of it all came from nasty goings-on in 2007. The anti-lesson is the problem of these crunches. TBTF banks are a real problem. However, quant shops making big losses is not, in itself, a big deal. Over the long haul, they've done very nicely, thank you. The occasional big loss is the shape of these things. The trick is to set your risk management up so that these big unforeseen losses aren't actually fatal. You'll notice Rentech and Citadel are still around...

Posted 2015-08-08.