Diary of a Financier

Bookshelf Update: The Quants

In Bookshelf on Tue 14 Aug 2012 at 10:20

I’ve hardly had a free moment during the weekdays lately, but I’ve made sure to make full use of my weekends. That means I’ve done some good relaxing at some traditional New England summer locales with some good friends & family. Thus, I’ve had time for reading, and I’ve knocked back a few books in rapid succession.

I do a lot of recreational reading–mostly non-fiction. I’ve gotten lazy about recording my thoughts about some of the books I consume, so I wanted to start-up again by excerpting my favorite passages from recent reads. Everything I read influences either my conscious or subconscious philosophy–my worldview, if you would–and I like to save tidbits for future reference.

I’ll (re)start here. Two weeks ago, I finished The Quants by Scott Patterson. Here’s a teaser that I found interesting…

~~~~

Chronicling the days after the first, severe shudders in global financial markets from pre-crisis August 2007, Mr. Patterson references a report, “Turbulent Times in Quant Land,” by Lehman analyst Matthew Rothman:

‘[Rothman’s note was] a terse reiteration of the Quant credo, that at the end of the day, people–and investors–generally behave in a rational manner…

“We like to believe in the rationality of human beings (and particularly quants) and place our faith in the strong forces and mutual incentives we all have for orderly functioning of the capital markets. As drivers of cars down dark roads at night, we learn to have faith that the driver approaching on the other side of the road, will not swerve into our lane to hit us…”

When asked to describe the severity of the [August 2007 market] meltdown, Rothman didn’t mince words… “events that models only predicted would happen once in 10,000 year happened every day for three days…” Three consecutive days of 25 sigma events.

–Scott Patterson, The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It

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