Posts tagged 'Quants'

Bubble watch: growth is good

Double double, toil and trouble…

Morgan Stanley’s US quant team has an eye on the market cauldron, and the simmering has a late nineties feel to it: Read more

Puny human analysts to be crushed by algorithmic steamroller

What’s the value of a good idea these days?

We ask because Institutional Investor has dedicated several pages to considering the imminent death of human insight in finance, as the machines squish take over. (H/T to Climateer.)

In this bold future, even your spell checker will be offering stock tips: Read more

Midnight Madness is expanding, practice your lateral thinking here

Midnight Madness, that Goldman Sachs-led all-night lavish scavenger hunt/puzzle-solving competition/performance art so wonderfully described by Quartz earlier this year, is back and expanding. This year the charitable event will include Citigroup, Credit Suisse, BlueMountain, and Secor Asset Management all fielding teams to compete against Goldman.

Below you can see the pitchbook that was sent to potential participants (in typical banking style) earlier this year: Read more

“As the only person in the room who has apparently never written a line of computer code…”

Presenting, a rather charming tale from Nicholas Colas, group chief market strategist at ConvergEx, who recently attended an algorithm-themed conference, and discovered — to his surprise — that quants aren’t really like regular people.

(Emphasis from Colas.) Read more

Misunderstanding Markowitz

A golden quote, delivered by the maestro and Nobel laureate to Laurie Carver of Risk magazine. Harry Markowitz slips in a Rodney Dangerfield impersonation while talking regulation of banks’ trading book risk here:

Optimising mean return subject to variance beats doing it with respect to all the other risk measures, including VAR and expected shortfall – and VAR is the worst of them. The Basel Committee are not the first people to do something wrong because they haven’t read my work. They are misguided and I know who misguided them – people who have PhDs in mathematics or physics, who tell them that is what the experts use. But the so-called experts haven’t read Markowitz – I get no respect. Read more

Top quant to next generation: you suck

OK, who woke up on the wrong side of the fat-tailed distribution?

It would appear that top quant Jesper Andreasen did. Here, according to Risk Magazine, is how the head of quantitative analytics for Danske Bank views recruiting the next generation (emphasis ours): Read more

Beware the quant models

If you thought the headlines were bearish… you haven’t seen the bank quant models (the ones which presumably can’t read headlines).

Looking at SocGen’s latest cross asset quant research, the picture painted on all signal fronts is increasingly coming across on the dire side: Read more

The No Free Deliciousness Principle

Guest post by Emanuel Derman

Foods with equal deliciousness should sell for equal prices per ounce. Read more

Quant pioneer settles US fraud charges

Barr Rosenberg, a pioneer in quantitative-based trading, has agreed to pay $2.5m and accept a lifetime industry ban to settle securities fraud charges with the US Securities and Exchange Commission, the FT reports. The SEC alleged Mr Rosenberg, co-founder of AXA Rosenberg, hid an error in a computer model that affected 600 client portfolios and resulted in $217m in losses. As part of the settlement, Mr Rosenberg, 68, did not admit or deny wrongdoing.  The allegations taint Mr Rosenberg’s legacy as one of the fathers of computer-based trading. He created computer models that digested financial data, corporate information, and news to make investment decisions without the oversight of traders. “Dr Rosenberg is distressed by the events that occurred at AXA Rosenberg. He never acted with any intention to cause harm to Axa Rosenberg clients or to gain any advantage or benefit for himself,” said his lawyer, Jonathan Bass. “He is relieved that the matter is now concluded.”

Goldman closes Global Alpha fund

Goldman Sachs is closing a well-known quant hedge fund, Global Alpha, after ringing up a hefty loss this year, reports Reuters. Goldman told investors in the roughly $1.6bn Global Alpha fund the news on Thursday, one day after it announced a management shake-up at the fund. The fund will be closed in the next few weeks. A person familiar with the decision told the FT the decision to close the fund had nothing to do with the new regulatory landscape.  Goldman is having to navigate new regulations, including the “Volcker rule” designed to ban banks from proprietary trading and limiting their ownership in hedge funds and private equity firms. But “sponsorship” of funds is still allowed as long as banks put in little or none of their own money. FT Alphaville has more including excerpts from the letter sent to investors.

Italy will be eurozone’s biggest test, says Altman Z-score creator

As Risk reports, Edward Altman, senior advisor to Classis Capital and creator of the Altman Z-scores used to predict corporate bankruptcies, made an interesting (sovereign) point on Friday.

The future of the eurozone will rest not on Spain, but on Italy, that other eurozone peripheral. Read more

Quant funds: The Brits are coming

There is talk in the City of London that Man Group’s new HQ has been outfitted with ultra-sophisticated cabling, the FT reports. It provides another signal that London’s quant funds are upping their game, with the big four – Man Group, Winton Capital, BlueCrest and Aspect – leading the race to develop trading models and increase execution ability. More frequent trading means big firms could get even bigger, but investors now face tough choices over whether to continue with established super-size names, or move on to nimble, smaller funds with differentiated models.

Volatility as the new Black-Scholes

Here’s a timely discussion following the Vix smashing through the 20 level.

It comes via Euromoney columnist, Theo Casey, and it concerns a 2010 paper by Eckhard Platen, professor of quant finance at the University of Technology, Sydney. Read more

Quants vs decimals

In early 2009, customers of AXA Rosenberg began complaining of ‘industry overexposure’ in their portfolios, according to an SEC order published on Thursday.

Fast forward two years and AXA — which was one of the pioneers of quant models for portfolio investments — has now been fined $242m by the US securities watchdog, for failing to disclose the discovery of a coding error in their investment model. Read more

Quant firm pays $242m to settle ‘bug’ allegation

The quantitative investment firm Axa Rosenberg Group will pay $242m to settle SEC allegations that it failed to warn clients about a bug in its models that lost them millions of dollars, the WSJ says. The action is the first of its kind against quantitative funds. According to the administrative complaint, senior managers learnt in June 2009 about an error in the computer model’s code that disabled a “key component for measuring risk”, the FT reports. Rather than fix the error immediately, senior managers told others to keep quiet and let the error remain in the model unfixed, the SEC alleged. The error was introduced in the system in 2007 but the company’s chief executive only learnt of the problem in November 2009. Clients were told in April 2010.

Quant crisis, the much more-moderated sequel?

Quant crisis. [kwont] [krisis] Origin: In August 2007 a host of quant-driven hedge funds experienced losses on the back of the subprime crisis and a series of margin calls. This led to a ripple effect causing losses across various quant strategies and would become known as the ‘quant crisis’ or ‘quant scare’ of 2007.

And might be (sort of) back, according to Morgan Stanley quant strategist Charles Crow. He thinks there’s been some rather significant volatility in quant-driven portfolios in recent weeks, which has shades of late summer 2007. Read more

Currency war goes covert

Ding dong, the dollar’s dead — against its Asian and Antipodean counterparts, anyway.

 Read more

Quant-ifying the HFT effect in stock movements

Here’s something for critics of high-frequency trading (HFT) to pull out for their next dinner party conversation, FT Alphaville writes – a new academic paper analysing the correlations of NYSE and Nasdaq stocks. Surprise: correlations are up, especially for smaller share trades.  Read more

Building a better Gaussian copula

It’s ba-ack. The formula that famously felled Wall Street, the Gaussian copula, is being revamped to deal with its fatal flaw — the fat tail of correlated default risk, FT Alphaville writes. UniCredit’s Martin Krekel has been attempting to tweak the model for pricing distressed CDOs. Which is ambitious. And brave.  Read more

Take on the World Cup quants

Data prediction site, Kaggle, has, er, borrowed FT Alphaville’s prize collection of World Cup notes.

But, being the light-hearted new media types that we are, we won’t hold that against them. Read more

The (Greek) tragedy of the quants

Spare a thought for quantitative funds trading the Euro-US dollar amid the Greek crisis, FT Alphaville writes. The quant model is at once increasing the cracks in the eurozone, and cracking. Read more

Introducing SocGen’s ‘leak-o-meter’

Intriguingly, analysts at Societe Generale reckon they can detect insider dealing – and save quant investors money in the process. FT Alphaville has the details.
 Read more

It’s time to take out the (rally) trash…

And replace it with new trash “low quality” stocks.

So say the quants at Bernstein Research, in inimitable quant-style. Read more

Burning of the Quants, redux

Remember the summer of 2007, and the onset of the Credit Crunch, when all the equity quantitative strategies fell over?

Well, it appears to be happening again. Read more

Ex-Goldman employee accused of cyber-theft

US officials arrested former Goldman employee and computer programmer Sergey Aleynikov over the weekend, accusing him of stealing sensitive automated trading codes and uploading them to a server based in Germany, the FT said. An FBI affidavit alleges that Mr Aleynikov downloaded about 32MB of proprietary trading platform data from his desktop computer at work as well as his laptop at home on four separate occasions between June 1 and June 5, his last day at Goldman in what FT Alphaville has dubbed the “Great Goldman Black Box Heist“. Mr Aleynikov was released on Monday after posting $750,000 bail.

On Goldman’s fat tail risk

Financial blog Zero Hedge points us in the direction of a risk management presentation from Goldman Sachs.

The majority of slides are typical management-type stuff. There are some impressive Venn diagrams and graphics of interlocked puzzle pieces, as well as a few intriguing comments on mark-to-market accounting, but the most interesting thing, we think, is the slide on fat tails and Value at Risk, or VaR. Read more

Victims of the dash for trash

Quant funds, of course, who have been buried during the recent bear market rally according to Bloomberg.

Companies with the most debt and lowest returns on assets are turning the biggest six-week rally in stocks since 1938 into a bloodbath for last year’s best-performing trading strategy.  Investors in so-called “quantitative momentum” funds –which speculate that the worst stocks in the past 12 months will continue to decline — have become this year’s biggest losers after banks and companies that rely on consumer spending surged. Quant momentum managers may have tumbled 27 percent this month in the U.S., the most since at least 1993, while those in Europe may have lost 20 percent in March and 24 percent in April, according to data compiled by JPMorgan Chase & Co. Read more

Quants fight for a better world

Financial Modelers ManifestoMr Emmanuel Derman and his pal Mr Paul Wilmott have assembled in New York City and written a manifesto – the Financial Modelers Manifesto, no less.

Stung by the abject failure of financial market models in general, the pair want to bring modelling into a modern, post-crunch age, where hopefully practitioners will avoid their previous habit of sweeping all unknown factors and other dirt under a rug labelled “default correlation.” Read more

Quant blame me

Introducing the new villain of financial meltdown: the lowly quantitative analyst.

From Scientific AmericanRead more

From Black Swans to White Eagles

The joke going around Vancouver is that this CFA conference in Vancouver should have been held in Perth – a beautiful city set on the estuary of the River Swan. The swans in questions are, of course, black.

Quite apart from Nassim Nicholas Taleb’s combative presentation on his concept of black swans – unpredictable events that throw the markets for a loop – his concept has dominated almost all discussions. Read more