Agreed. With "pricing" in this case I really meant providing tools that would be used in the generation of P&L statements and thus, implicitly, bonuses.Quants didn't price CDOs. Banks hired magicians for that task.Not the CDO product per se. The basic ideas of reducing risk through diversification and leveraging up or down via tranching are both sound. But the entire machinery developed around base correlation and mapping bespoke portfolios onto index curves and extensions to CDO-squared and even more complex structures did not represent our finest work. Whether bottoms-up or top-down, the models were made to appear like just another set of derivatives pricing tools, yet lacked just about any theoretical basis of the sort that had been developed for equities, rates and FX. Parameter uncertainty, hedging cost, basis risk, and the like are all very real concerns in all derivatives modeling, and usually get worse with long maturity, nonlinear payoff, and multiple underlying assets. But given a choice of marking and risk managing a book of PRDC swaps and one filled with bespoke CDO and CDO^2 tranches I would feel more comfortable with the former.Why do you see CDOs as an exception? Do you honestly think that the pricing of 50-year cancellable IR swaps has more basis in reality than of a 5-year CDO tranche? At least someone, somewhere, held the latter to maturity.
John is an academic with a flair for exposition and the (co-)author of a remarkable number of papers containing simple derivative valuation models that have found practical use. To the best of my knowledge, he has not spent all that much time in the trenches (not to be confused with tranches).John Hull is not a quant?
And that's the problem with the profession - how easy it is to replace quants by magicians. After 20+ years within the banking environment quants are still implants from academia - to be removed as soon it is possible.
Agreed. With "pricing" in this case I really meant providing tools that would be used in the generation of P&L statements and thus, implicitly, bonuses.
Most of us who have been doing this for a long time are arguably both. By convention, full time academics are not usually described as quants, even when otherwise qualified. This is based on a usage of “quant” as an occupation rather than a state of mind or in possession of a set of qualifications.I'm confused. Are quants practitioners in the trenches or implants from the academia?
You guys need to find a better cover story for your attempt to distance yourself from this part of quant finance which gained notoriety.
That is sadly true. The discussion part, I mean.I think quantitative finance is not over. Except for one place - Wilmott forum. We don't discuss options anymore, we discuss Donald Trump.
Didn’t that already happen, like ten years ago? Perhaps it’s another case of the old William Gibson saying: “The future is already here — it's just not very evenly distributed.”To the OP a different perspective.....yes, bilateral margin rules, regulatory capital and a push to clearing will result in a simplification of products across the board.
Were TARNs, range accruals, snowblades and many others with forgotten names intelectually challenging? Shaping payoffs was just boring. The problem is not with products but with us.To the OP a different perspective.....yes, bilateral margin rules, regulatory capital and a push to clearing will result in a simplification of products across the board.
Well then what about using QF modeling techniques on human behavior?Were TARNs, range accruals, snowblades and many others with forgotten names intelectually challenging? Shaping payoffs was just boring. The problem is not with products but with us.To the OP a different perspective.....yes, bilateral margin rules, regulatory capital and a push to clearing will result in a simplification of products across the board.
Do we have a BS of human behaviour? A single formula describing rigorously the most important factors of human behaviour? If not it's carving of the air.Well then what about using QF modeling techniques on human behavior?Were TARNs, range accruals, snowblades and many others with forgotten names intelectually challenging? Shaping payoffs was just boring. The problem is not with products but with us.To the OP a different perspective.....yes, bilateral margin rules, regulatory capital and a push to clearing will result in a simplification of products across the board.
What if every financial instrument is really a derivative who's underlying is humanity?