What is quantitative finance?
Quantitative finance is a relatively new field which links mathematical
finance with the real-world business of managing risk in trading operations.
It runs the gamut from systems programming to creating new models to implementing
high-precision numerical PDE solving.
It's also the refuge of lots of ex-physicists and ex-mathematicians, giving
us a career that doesn't involve sacrificing ourselves to the Hell of a Thousand
Postdocs.
"Quants" aren't the people who publish pieces on which way we think exchange
rates will move or whether INTC is overvalued with respect to MSFT. Instead,
we generally model assets as random processes - we don't claim to know anything
about whether a stock will go up or down, but do try to model the distribution
of possible moves.
We then use these models to price derivatives whose prices depend on the
asset; for example, trying to figure out the fair price of a stock option.
Traders then use our models to figure out the current value of their portfolio,
and how the value of that portfolio would change if different market variables
moved around - this is risk management.
Quantitative Finance Links
The Wilmott Forums. These are part of
Wilmott's website, which hosts an interesting
set of articles on quantitative finance. The forums are where the really
exciting stuff happens - lots of interesting discussions between academics
and practitioners.
Emmanuel Derman used to run the Quantitative
Strategies group at Goldman Sachs, and he's published quite a few interesting
articles. They're all available on-line on his website.
In particular, the article on vol swaps has
become required reading for the equity derivatives and foreign exchange markets.