Science in Finance II “…ists”

A century or two ago, finance was the career for the less talented members of the family. Sons of the aristocracy would eventually go to sit in the House of Lords, while overseeing their property. One son would join the military, Catholic families would send a son off to the church. Perhaps if they were of an enquiring mind one son might become a scientist. But if a son turned out to be intellectually challenged he would be sent off to be ‘something in the City.’ This didn’t require any more brains than that required for an arts degree. This was the finance-is-for-artists (and long lunches) period, now long gone.

More often one now finds proper scientists working in finance. They have the analytical skills needed by investment banks and hedge funds. I imagine some must start out being frustrated by the lack of an established rigorous foundation for the subject. Where are the conservation laws? Where are the experimental results and the hypotheses? Quantitative finance has a well-used set of tools, but the popular models are essentially ad hoc.

Those in trading are undoubtedly pragmatists who really don’t care for the port-and-cheese side of finance, nor for compact theories. Can it be put in a spreadsheet and does it make money? That’s all that matters.

Unfortunately, most of the theory is built by axiomatists who really seem to believe in their models. These are the ones to be really frightened of. Speaking to them is like speaking to a god botherer, “there is but one stochastic volatility model and its name is Heston.” (News flash: God and complete markets are simplifying assumptions that make life easier for the unimaginative, you aren’t meant to believe in them once you’ve grown up!)

My feeling is that the best type of ‘ist’ working in finance is a pragmatic scientist, combining the curiosity and the scepticism of the scientist with the get-the-job-done attitude of the pragmatist.

P

Related Posts

Where Do You Keep Your Offshore Money? Where do you keep your offshore money? The media is all upset about celebs, politicians, etc. having money in various offshore places, in order to ...
Bloomberg View Columnist Barry Ritholtz Interviews... Listen to Barry Ritholtz interview Paul Wilmott about quantitative finance, mathematical modelling, reputational risk, Tom Cruise, JK Rowling, Billy J...
Boris Johnson, Yanis Varoufakis And Sir Vince Cabl... Boris Johnson, Yanis Varoufakis and Sir Vince Cable all have something in common…. All three have been in the news lately with their interpretation...
Webcast – Paul Wilmott On “The Money F... Paul recently gave a talk in downtown Manhattan about his new book, co-authored with David Orrell, The Money Formula. Other topics get dragged in alon...
Jeremy Corbyn: My Part In His Ascent First, disclosure: I am rather right wing, from the school of "take some of my income in taxes but otherwise leave me alone, please." And as a general...
The Money Formula – New Book By Paul Wilmott... The Money Formula: Dodgy Finance, Pseudo Science, and How Mathematicians Took Over the Markets OUT NOW!!! Buy Paul's Latest book NOW on Amazon! ...
Ed Thorp: A Man For All Markets The book we've been waiting for, the full story of Ed Thorp's career in mathematics, science, gambling, and finance. An inspiration for us mortals. ...
We have adjusted our estimate of Mark Carney’... In August The Bank of England forecast growth in the UK in  2017 to be 0.8%. They have now adjusted that forecast to 2%. That's a factor of 2.5....