Quants | The Alchemists of Wall Street | VPRO documentary
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- เผยแพร่เมื่อ 3 มี.ค. 2010
- Quants are the math wizards and computer programmers in the engine room of our global financial system who designed the financial products that almost crashed Wall street. The credit crunch has shown how the global financial system has become increasingly dependent on mathematical models trying to quantify human (economic) behaviour. Now the quants are at the heart of yet another technological revolution in finance: trading at the speed of light.
What are the risks of treating the economy and its markets as a complex machine? Will we be able to keep control of this model-based financial system, or have we created a monster? A story about greed, fear and randomness from the insides of Wall Street.
Originally broadcasted by VPRO in 2010.
© VPRO Backlight February 2010
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Credits:
Director: Marije Meerman
Research: Gerko Wessel
English, French and Spanish subtitles: Ericsson.
French and Spanish subtitles are co-funded by European Union.
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vpro documentary can you make another quant documentary?
I like to learn new things..I love you vpro
In my humble opinion as a mathematician, the problem is not the quants modeling financial markets. Those are smart and highly capable fellows. The problem is the decisionmakers in banks, who rely too heavily on the models. No-one can predict the future. Also that's not what quants do. They predict a distribution, not a value, because prediction a value is not possible. Also it's known that the classical models have shortcomings. The quant business is all about doing the best you can to minimize risk. It's better to use a good model with some shortcomings than no model.
anyone watching this in March 2020? This documentary might as well have been made 2 weeks ago.
I m watching this because of the Corona induced gfc
The world needs a cooperative stock exchange, or the new “Long Term Stock Market” to turn out to be viable.
game never changes, just the people. be safe mates.
Well met, and good luck - UK
It wasn’t?
I did maths from a top university and then did Masters in financial maths - most of the material was useless in the real world. After I just liked the general outline of finance/investing concepts which are far more easier to understand and practical. Later did a Masters in Real Estate Investment & Finance and found that even more practical to life. The only thing a company will care about if they do not understand a Quant with PhD and years of programming/modelling is if he can produce models that make the company money! If the can create correlations between certain data points to give an early trade advantage for the hedge fund. Otherwise it is all useless. In the academic world the concepts are celebrated but in the real world it is all about the $$$'s!
“Some men wrest a living from nature. This is called work. Some men wrest a living from those who wrest a living from nature. This is called trade. Some men wrest a living from those who wrest a living from those who wrest a living from nature. This is called finance.” - ~ Fr. Vincent McNabb
"In the end you can not fool nature"
Richard Feynman
"He's my quant"
I think there's only a handful of people in the world that truly understand how some of these derivatives work
Great video. Financial mathematicians/computer scientists providing transparency to what really happened during 2008 financial crisis
Wow. This is an amazing film about the craziness on Wall Street. Well Done! As a trader myself, this film is a wonderful look at the inside world of Wall Street and the absurdity of the ludicrous optimism and incorrect assumptions made on the street.
I liked this documentary very much. Thanks for uploading! I am an amateur trader of stocks in Europe (in Lithuania). I have never seen such a beautiful presentation of reality - stock "laws" are not Newtons laws and stuff like that...
I would caution you about anything that you read through google.. wiki youtube.. Trump is right about one thing.. Lots of fake news. lots of fake ppl..lots of fake theories..
Mike Osinski was my Prep School Roommate at Saint Andrews, Boca Raton, Florida. We graduated together in 1972. He was always brilliant and a great athlete as well. He was my best friend.....a thousand years ago.
Hello from Mr. Kosinski. Almost related. All the best mate.
donald wilson and a good lover?
Amazing. Uploaded on March 4th, 2010, and date of 2010 Flash Crash, May 6th.
True. the same as what Wilmott said in the video.
Fantastic video. Love how they detailed the banking element as well as the software developers' perspectives. Being a software developer myself, I can relate entirely. Kudos for the great work!
Too drunk to truly appreciate this at the moment but I will watch it when I sober up
Better now?
You sober man?
he's got a hang over guys
lol
Some say he's still looking for his computer
28:20 hmm... I'm studying mechanical engineering and I am also interested in financial engineering. But this made the point about the difference of physics and financial mathematical models...
18:23-19:35 Most important point in this video. It's Wall St. in a nutshell, especially private equity and hedge funds that benefit from the carried interest loophole.
Except it's not. The difference between ordinary investment funds and hedge funds is that hedge funds also use their own money to invest. They make an investment and at the same time they invest in something on the other side of the "hedge".
I can’t believe a decade ago was 2010
wow....very mind blown - great admiration for these guys.
First time I watched these I dozed off before the 15th minute, now I'm amazed at what I was missing. Thanks YT algo.
My impression of the quant/programmer who quit and went into the oyster business is, IMHO, he simply got tired of programming. People can get tired of doing the same thing day after day. Programming and higher math can be very mentally taxing. Of course, he went into something radically different. IMHO, he simply burned out.
I love the style of this documentary! One of the best I've seen IMO.
Thanks Markus, did you see the other documentaries that talk about finance? Check out our playlist! : th-cam.com/video/6Mq_vrDLN7w/w-d-xo.html
Quantitative finance will only continue to grow. As Derman says in the video, it is a question of incentives. Profit will always be a bigger incentive than most anything else at any moment. So ultimately we need a game changer that will systematically prevent toxic conditions. We need to mature as a capitalist society otherwise we might not make it the next time around.
I can hear Emanuel Derman's South African twang the second he spoke. It never leaves you!
Grotesque accent
Thank you for posting this video! Much appreciated!!
-G
I wish I could listen to any of these two men for at least an hour.
excellant documentary. thanks
Vpro , you are doing an amazing job with this documentaries !
Thanks
Well, thank you for your comment!
This was 10yrs ago. My gosh.. Time had certainly slowed down 🤦♀️
This is an informative documentary about the Quants - the people who extensively use mathematical model to predict the stocks in the share and financial markets. Strongly recommended for the people who wants to know the intricacies of financial world.
The only reason why I can understand this is because I watched “The Big Short” and “Margin Call” multiple times. 🧐
Big sort
So fascinated about quantitative analysis. Im so happy i discovered it before deciding on my masters degree. Just started to study finance and in my free time i lookup courses about linear algebra and statistiks until i am ready to start the quant course!
ClarityRyZze is there a masters on quantitative analysis
I like the fact that the English guy had come to the realization, and was pointing out, that it was all ultimately meaningless and contrived, and bogus, and they would be far better off dedicating their talents and brains to actual science rather than this financial contrivance.
39:20 Two months after Wilmott mentions the "next crash could be within minutes", it happened. Being an algo trader myself, the "speed" of markets is always increasing - it takes less and less time to make the same wave pattern.
This is wayyyy above my brain wave even my postcode
This has been the best quant video I've ever seen. definitely worth a second watch.
+Alex Yang I've already watched it 3 times and I found it at lunch today. Based on this video I think I definitely need to be in this.
18:23 nails it
Joel Tillinghast, fund manager at Fidelity, says the problem with quants can be too much abstraction. They get so caught up in the math they forget they're dealing with shares of a company and not just abstract numbers.
Love the book. Now I just found this doc.
What book? My life as a quant?
These guys are AMAZINGLY SMART!!!!
Thanks for the brilliantly well thought out video.
The primary negative effect of the quants was not the extra-ordinary mis-pricing of risk (Gaussian constant volatility vs heavy tailed fluctuations w/ clustering & nonlinear codependency etc), it was the systemic fragility induced by synchronizing the system coupled with risk averse agents that suffer from informational imperfections
these people are really smart !
Amo este canal
Gracias pibruks! Saludos desde los Países Bajos!
I am amazed..
35:21 i like this quote. Paul Wilmott is so awesome, this guy is something else
+I am jk It's funny how Mr. Derman doesn't seem that confident in the field quantitative finance, but he still teaches those classes.
I hope that helped :). Integrating this requires knowledge of stochastic calculus. The mean, variance, kurtosis, skewness etc of this process is derived from it's characteristic function
Tonally, you refer to yourself similar to my future self from a few years beyond today. 09 26 19. That you aim to empower beneath the surface (of financial success) while also shattering the vastly unrealistic paradigms of those most linearly-oriented upon the surface ... is appreciated, by 100% of the aforementioned on some level within them. We thank you.
This opened my eyes alot cause I'm undecided to be in the firm world, great doc!
God damn, they really make being a financial engineering student sound like a nightmare. Actually it's a whole lot easier than studying physics or pure math.
+AzxE10
Mr. Derman doesn't look that confident in his methods. Is the field still worth going in to?
Exactly
Yeah tell that to the physics and math undergraduate students doing the MMF with me, struggling as hell.
Most students that are doing a masters in financial engineering (which is what im guessing you are refering to), are initially physics/math grads.
You are right in that sense: that financial math is "soft" compared with "hard" maths like physics and pure math BUT then again, always remember what the great Isaac Newton said: that he can compute the movement of the stars but not the madness of men. He is brilliant with physics but flunked at investing. So how in the world can you explain that?
There is an unjustified mixing of two different things: 1) quant work (quantative analysis) of the like used to price and CDOs and CDSs and analyze portfolios, 2) High frequency trading. The first 37 minutes are focused on quant work, and then (@ 37:45) someone mentions high-freq trading and suddenly the rest of the documentary becomes about that! That is a different topic altogether. The only commonality is that math and computers are involved in both!
In fact, the areas where quant work was most infamous, the pricing and risk modelling of CDOs and CDSs, have been entirely devoid of high-frequency trading. The reason is that those derivatives are not very liquid (i.e. do not change hands every minute of the day) and HFT, by definition, requires very liquid markets.
The overarching subject matter is the use of intellectual masturbation veiled in the aura of science to lend to it a purpose it never had legitimacy to have: extortion of unearned, incommensurate amounts of wealth relative to the service provided.
It lead to a point where at the height of the crisis, the financial sector was a blob eating 41% of american total corporate profit.
Unhinged, That is a brilliant point that I have felt, but never articulated in my own mind.
There is an aura of "brilliance" around these people and this work. Of course they deserve it, they are brilliant! But really, what does deserve have to do with it? I could invent a machine that turns puppies into gold bricks. Should it be used?
@@UnhingedBecauseLucid hahahaha don't get mad at the quants if that's what you're mad about. Quants are at the bottom pay wise and do the most work tbh.
You should be mad at the bond traders if that's your criteria. Or better, the risk management executives
@@UnhingedBecauseLucid how did u get 41% number. what do u mean when u say.. eating corporate profits?
thank u
Nice touch with Beethoven's 7th near the end describing Wall St's transformation :)
I used to tease my economics friends at uni for their endless straight line graphs haha.
17:43 - This is the krux of human nature interacting with the financial market..
The animation at 15:28 is unreal, love it
This is like watchin the real life version of the "Pi" movie, Darren Aronofsky was ahead of time back in 1998!!
I forgot about that movie!
"Next crash could be in minutes" - nicely said. This guy is totally right. Remember the may 6 dive on wallstreet
fantastic! this represents the same view that I have about the micro world of finance ever since.
This helps more than school
Great video, thanks !
On this April Fools Day it warms my heart to know Jerome Powell as such Alchemy to protect us all
from financial risk.
I can't believe that I only found this video yesterday.... 6 years later :-/
Me too! Just found it yesterday man!
Better late than never!
Just like our comment. Oo'
Better than me at least, 8 years later~
Abdullah Yakub, did you like the documentary?
Has an almost Ghost in the Shell vibe to it. Nicely done folks, was thought provoking as I study this stuff
What was wrong with the documentary?
This video is far out, I learned a lot. I'm doing a masters thesis in computational economics, so I'm sort of an accidental quant.
The problem is not with the quants, it's with the people on top not understanding the math!
wrg
We're in a transition period, I think in another decade or so this won't be so much of a problem anymore.
+manu el Quants can't look at the underlying businesses
manu el .. indeed... including their colleagues in Investment Banks
Bryan Wheelock ... really ?... #JimSimon
"ya dont..."
"...no"
"well we were really dumbing it down were'nt we"
"yeah"
"oh dear"
Excellent film.
Nice one...thanks.
soundtrack from Moon (2009)!
Beethoven's Symphony no.7 in A major, Op.92
Very insightful post you're one wise guy, and I don't say that often.
This documental was the inspiration of producing The big short
"Hey!!! I like your channel. It is content rich. Keep making informative videos. ▶️📺🎥🙌🏽💥"
Where did they get the background scores from - they're awesome?!
i see your point and it is a good one...
thanx again vpro
28:37 true. Its just too emotional a thing !.
16:35 "Manager just has to belive the cuant" hahaha
very good video
The problem with economic calculations is, that it's totally derived from the real world. People (consumers) are hard to predict, so is the amount of resources we have, like iron, oil, etc. The motivation here is to make as much money as possible, so most likely the only ones winning are the bankers, since they create it out of thin air.
Amazing video
39:00 The next crash could happen within minutes. Flash Crash 2010.
Brandon Gordon Yeah that guy knows his stuff
Yeah I though that; how incredible. Defiantly validates himself in that regard.
Yup I caught that one as well! :)
Brilliant
35:40 best line ever!
"EVERYBODY IS WORKING TO SERVICE THE BANK" WOW!!!!
"My wife and I would wake up after having had the same nightmare, eventually we realized we didn't know what day it was ...." Guess what pal? Ordinary working people have the same exact issues working their jobs.
Well not really. Most ordinary people know exactly what day it is. Or at least how many days until the weekend. The thing with Physically demanding work, 99% of people (in the US, idk about third world countries) will get Saturday and/or Sunday off. With this kind of work you never stop, because you can't. It breaks you mentally. But then also, as he said, it's hugely rewarding when you stay awake for three days and figure out a problem that would have caused a catastrophe otherwise.
18:25 really interesting graphic and explanation
Interesting work
39:33 Next crash could be in minutes: flash crash
Funny I don't remember BBC, PBS , FOX, MSNBC, CNN, NPR etc talking about Quants. Anybody surprised ?
Nice work!
The complexity of a cash CDO is higher than that of a diversified portfolio containing securities with varying tail thickness and co-dependencies because it, also, depends on the opacity of subordination (supersenior tranche, PIK etc) , the width of tranche (thicker tranche ==> lower macro-sensitivity, thinner tranche==> high macro-sensitivity), the weight of nth order securitized securities in the reference portfolio (CDO, CDO^2..CDo^n=> a tranche included CDO's==> macro-hypersenitivity)
If it is a head I win
if it is a tail you lose !!
I will never lose..that's the mantra :)
Goes from ripping off clients to ripping out oysters and mussels from their habitats...what a humanitarian.
No matter what equation you write, if people stop putting money in the bag, the bag won't grow up. Everything in the markets is based on the hypothesis that it's gonna grow and your profit is gonna be the capital that someone else invested. In a few words, where you win, someone else has to lose. The goal is to be on the right side of the game, but good luck doing that when people invest billions and one single actor can influence the game by himself.
Very interesting. I'm an econ undergrad, and I don't think any of our further time series / econometrics courses cover stochastic processes. Would you imagine there would be some prerequisites like straight maths for quan(tative finance?) or would a solid econometrics course be considered? Whats your opinion on econometrics.
Paul Wilmott and Emanuel Derman seem to both absolutely hate the finance industry and love the pure math/physics. I don't understand how two highly regarded lecturers in the field of quantitative finance can dislike finance so much.
Mario Ostojic its called integrity
kris hall fair point but then why do they dedicate their lives to teaching that which they hate so much?
+Mario Ostojic That's the right question. Maybe the pay it better?
+Dwight Dunker While that's probably true, academia isn't quite the right place for people wanting to maximise their income. I imagine top researchers at quant funds and consultancy companies are much better off.
Mario Ostojic They've probably made enough money already. So now they can just chill and relax. By the way... the pay for finance professors is among the highest in academia.
Price of cheap beer is fixed by the government for public safety, it is linear.
The Black-Scholes partial diff equation is derived in undergrad math courses. In grad math courses, far more realistic models are taught. I learned how to model options with multi-scale stochastic volatility and inhomogeneous jump processes==> spdde. Black- Scholes is an extremely simple case.