Jump to content



Photo

Math nerds are taking over Wall Street

new york stock market. mathematics quantitative finance algorithm

  • Please log in to reply
13 replies to this topic

#1 Hum

Hum

    totally wAcKed

  • 62,876 posts
  • Joined: 05-October 03
  • Location: Odder Space
  • OS: Windows XP, 7

Posted 27 July 2014 - 03:41

"They are not making trading decisions -- those are all made by computers."

 

When you think about the typical Wall Street trader, you probably picture a fast-talking Wolf of Wall Street type.

But guess what? They are rapidly being replaced by "quants" -- soft-spoken super nerds armed with high-tech software to help them beat the market.

 

Elie Galam is one of them.

 

Every day, the 30-year old runs 35,000 different trading strategies through software he designed to find a handful of trading ideas with a high statistical probability of making him money.

From an early age, Galam was obsessed with math. After high school, he studied at the École Centrale Paris, a prestigious French engineering university. After that, came Harvard, where he enrolled in an applied mathematics doctoral program. Galam jokes that life at Harvard was like Matt Damon's character in the film Good Will Hunting.

In one class, he built a computer algorithm that successfully identified the writer of an article based on programmed characteristics such as style and voice. It was the kind of work that would lay the foundation for his career in finance.

Soon enough, Wall Street recruiters began knocking on Galam's door. Money, prestige and the chance to work on cutting edge quantitative finance systems all appealed to him. So he cut his Ph.D program short after one year and settled for a master's degree instead. At the age of 22, he accepted a job at Blue Mountain Capital, a credit trading hedge fund in New York.

After a few years, his entrepreneurial spirit kicked in, and Galam went into business with James Greenberg, a veteran Wall Street dealmaker. The duo went on to launch Panorama Partners in late 2011.

At the core of their strategy: a quantitative software program built from scratch by Galam that uses historical data and analysis to predict price movements in various assets.

"We get as much data as we can, we shock it, test it, do back tests, historical analysis," Galam explains. "That's where I come in, where the science comes in."

 But Greenberg insists that Galam isn't your average Wall Street quant, and that he possesses the rare combination of computer skills along with raw trading instinct.

"He has a rigid approach to math but he also has creativity," Greenberg says.

Potential hires don't need to know much about finance, but they should be top notch when it comes to applied mathematics. Complex brain teasers are standard interview questions.

He keeps in close contact with his old math professors in Paris, and calls them frequently to ask about promising talent in the classroom.


more & video




#2 Auditor

Auditor

    Neowinian

  • 1,109 posts
  • Joined: 16-May 10
  • Location: Alberta, Canada

Posted 27 July 2014 - 04:17

All these share volatality can not be solved by some freaking software algorithm. It is same as predicting the lottery ticket number by looking at historical winning numbers.



#3 +ChuckFinley

ChuckFinley

    member_id=28229

  • 9,685 posts
  • Joined: 14-May 03

Posted 28 July 2014 - 12:46

All these share volatality can not be solved by some freaking software algorithm. It is same as predicting the lottery ticket number by looking at historical winning numbers.

 

Exactly, Its about predicting human behavior more than anything else. 

 

Nothing is going to stop a massive sell off when the zombie apocalypse comes. 



#4 jakem1

jakem1

    Neowinian Senior

  • 6,556 posts
  • Joined: 17-November 06

Posted 28 July 2014 - 13:21

I think this is old news. It's certainly been the case here in the UK that Financials Services industry is starving other industries of mathematicians for many years and I'd be surprised if the same thing hadn't been happening in Wall Street over the same period.



#5 XerXis

XerXis

    Neowinian Senior

  • 5,078 posts
  • Joined: 13-February 06
  • Location: Belgium

Posted 28 July 2014 - 13:40

and then a tsunami hits japan and all the carefully thought out models and predictions go to the bin ;)



#6 vetneufuse

neufuse

    Neowinian Senior

  • 16,858 posts
  • Joined: 16-February 04

Posted 28 July 2014 - 13:45

And I have software that predicts horse races... in the end, it's all luck



#7 T3X4S

T3X4S

    Neowinian

  • 982 posts
  • Joined: 28-October 13

Posted 28 July 2014 - 13:50

All these share volatality can not be solved by some freaking software algorithm. It is same as predicting the lottery ticket number by looking at historical winning numbers.

Not so - lottery is random - trading has patterns.  buying when things are good, selling when things might go bad or are going bad - the players change but the pattern hasnt changed too much.



#8 OP Hum

Hum

    totally wAcKed

  • 62,876 posts
  • Joined: 05-October 03
  • Location: Odder Space
  • OS: Windows XP, 7

Posted 28 July 2014 - 14:46

It is same as predicting the lottery ticket number by looking at historical winning numbers.

Funny -- I have won using my own programs. :happy:



#9 T3X4S

T3X4S

    Neowinian

  • 982 posts
  • Joined: 28-October 13

Posted 28 July 2014 - 14:56

And I have software that predicts horse races... in the end, it's all luck

of which I apparently have none -- my method of "pick the horse with the name that sounds like it would win" doesnt work for crap !



#10 vetneufuse

neufuse

    Neowinian Senior

  • 16,858 posts
  • Joined: 16-February 04

Posted 28 July 2014 - 15:04

of which I apparently have none -- my method of "pick the horse with the name that sounds like it would win" doesnt work for crap !

 

Always bet on "Shes-Commin-up-the-rear" never fails



#11 Arpit

Arpit

    The neowin lurker

  • 2,020 posts
  • Joined: 16-August 01

Posted 28 July 2014 - 15:09

as a math/finance major i've seen a glimpse of some of these models in action and it is pretty bloody amazing as to what they can accomplish.

 

it's true that you'll have events that cannot be foreseen but if you're able to model their probability of occurrence and consequential impact then assess the risk accordingly you can still come out ahead.

 

it's also true that this is about understanding human behaviour but the foundation of technical analysis *is*, in fact, behavioural finance.  when you look at past events and the market movements you basically look at 'how did people react in these circumstances?'  you try to compare similar events and the market's reaction to that, you weed out as much noise as possible...it's not perfect but you assign probability (based on data/judgement call) then make your bets accordingly.



#12 Auditor

Auditor

    Neowinian

  • 1,109 posts
  • Joined: 16-May 10
  • Location: Alberta, Canada

Posted 29 July 2014 - 04:32

as a math/finance major i've seen a glimpse of some of these models in action and it is pretty bloody amazing as to what they can accomplish.

 

it's true that you'll have events that cannot be foreseen but if you're able to model their probability of occurrence and consequential impact then assess the risk accordingly you can still come out ahead.

 

it's also true that this is about understanding human behaviour but the foundation of technical analysis *is*, in fact, behavioural finance.  when you look at past events and the market movements you basically look at 'how did people react in these circumstances?'  you try to compare similar events and the market's reaction to that, you weed out as much noise as possible...it's not perfect but you assign probability (based on data/judgement call) then make your bets accordingly.

You can say what you want but market, people, always behaves unexpectedly and most of the time irrationaly which is the main reason there is no significant algorithm to predict it. The only sure shot way to make money in share market is insider trading. By the time the software predict some abnormality for the gain, the market will correct itself quickly which will negate that gain.



#13 Arpit

Arpit

    The neowin lurker

  • 2,020 posts
  • Joined: 16-August 01

Posted 29 July 2014 - 11:53

You can say what you want but market, people, always behaves unexpectedly and most of the time irrationaly which is the main reason there is no significant algorithm to predict it. The only sure shot way to make money in share market is insider trading. By the time the software predict some abnormality for the gain, the market will correct itself quickly which will negate that gain.

 

you're missing the point.  the objective is not to predict the irrationality, the idea is to:

- minimize the losses once something irrational occurs (by investing fewer amount of money) or selling for a little loss

- capitalizing on the market extremes (buy when oversold, sell when overbought)

 

as an example - say i have $10K in a portfolio...$5K maybe invested in some stock...some irrational event takes place and the stock drops.  depending upon the volume/% drop (and other technical conditions) the algorithm could determine that this isn't a regular blip and sell automatically, but even if it doesn't, and the investment goes down to $2K...then the algorithm could look at the technical conditions at that time and buy more stock and average down with remaining $5K...once it goes back up, you've made your old losses + more money.

 

this is a very basic example with only stocks.  when you throw stock options into the mix you can do a ton of things to make money/minimize your losses regardless of the market direction, even if you don't time it correctly every single time.

 

timing the market helps, no doubt, but it's not the only way to make money in it.  algorithms just help speed up the transactions what a person typically cannot.

and of course, judgement calls are involved.



#14 Walid W.

Walid W.

    I love Orcinus Orca

  • 1,647 posts
  • Joined: 19-July 08
  • Location: Lost somewhere in Sweden
  • OS: Ubuntu, Debian, Backtrack 5r, Windows 7 & XP
  • Phone: iPhone 3GS, iPhone 4s & HTC One

Posted 29 July 2014 - 11:59

Hollywood is going to make a movie of this soon hopefully :)