You might have thought the end of complicated mathematical finance - or at least, its moderation - was on the horizon.
Not if you’re a hedge fund. Alpha magazine has a big-picture piece this month on the rise and rise of quantitative funds - and why the crunch is throwing up big opportunities for them. If you are a tech/finance/stochastic geek this is interesting stuff. If not, you have been warned.
The gist of the article is about the big thrust being made in developing behavioural market models: specifically the age old problem of reconciling irrational behaviour with rational models.
From the laws of quantum mechanics (uncertainty principal etc) and crowd psychology to machine learning and applied biology and population theory it’s all fairly tantalising - if abstract to the point of uselessness - stuff.
Here’s a quote from Marek Fludzinski (of Thales fund management):
Maybe we need to build a computer simulation that has 50 million people, with complicated rules for each… it’s very difficult to explain why people behave irrationally.
Which sounds uncannily like the Borges fable: a tale of a fictional map, with a scale of one mile to a mile.
