Where the Quants Failed

By on February 25, 2010

Harry Hurt III, writes a generally favorable review of Scott Patterson’s new book, The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It in the New York Times.

Mr. Patterson casts the quants’ pursuit of riches as “an epic quest for an elusive, ethereal quality the quants sometimes referred to in hushed, reverent tones as the Truth.” According to the author, “The Truth was a universal secret about the way the market worked that could only be discovered through mathematics.” When coupled with giant, turbocharged computing machines, it was the key to reaping enormous profits.

In his book, Patterson points out that the majority of the quants heaped enormous profits on themselves by capitalizing on small pricing anomalies, but didn’t take into account the possibility that the whole edifice could break down. Of course, this occurred in 2007-2008 and caused them to suffer enormous and unrecoverable losses.

Source: New York Times

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